Homeowners have traditionally relied on the mortgage interest deduction to provide an ongoing tax benefit. By doing so, the cost of mortgage interest is used as an itemized deduction to offset current taxable income. However, the potential usefulness of the mortgage interest deduction has been diminished by recent tax legislation.
The Tax Cuts and Jobs Act (TCJA) was passed and signed into law in December of 2017. The TCJA is often described as a tax reform bill, due to its broad scope. One of the most noteworthy provisions of the TCJA roughly doubles the standard deduction from the previously allowed amounts.
Effect of a larger standard deduction on homeowners
The increased standard deduction amounts are effective starting in 2018. The standard deduction for a single tax filer is increased to $12,000. For a married couple filing jointly, the standard deduction rises to $24,000. For the head of household status, the standard deduction amount becomes $18,000. Because of the greater standard deductions now available, fewer homeowners are likely to benefit from itemizing deductions.
Tax filers can choose not to claim the standard deduction, electing instead to write-off an array of allowable itemized deductions. For the typical homeowner, deductible mortgage interest is likely to be the largest single itemized deduction. Even if you choose not to itemize on your federal tax return, you might still be able to utilize your mortgage interest on your state income tax return.
Itemizing on state return only
State standard deduction allowances are generally lower than the federal standard deductions. Some states require filers to itemize on their state return if they itemize on their federal return. Alternatively, filers in those states must claim the standard deduction on their state return if the standard deduction is chosen on their federal return. Other states, however, allow you to make your state return selection without regard to the federal return choice.
Regardless of the status of your federal return, continue to keep track of all allowable deductions for possible use on your state income tax return. Your tax preparer can select the best available outcome after including your deductions in the calculations. State tax rules are subject to change over time, so continue to maintain itemized deduction records in order to always obtain the most optimal outcome.
Tax filers who are blind, or at least age 65, qualify for a slightly greater standard deduction on their federal return. The additional amounts for age or blindness were not changed by the tax reform legislation. For tax services, contact a financial services firm like Balkcom Pearsall & Parrish CPA's PA.