With one of the hottest homebuying seasons in full swing, new homeowners face new tax advantages and disadvantages under the Tax Cuts and Jobs Act (TCJA).
Under the Tax Cuts and Jobs Act rules that apply for 2018-2025, new homebuyers can claim an itemized deduction for the interest on up to $750,000 of mortgage debt used to buy or improve a new home, or $375,000 for married couples filing separately. These limits are lower than previous law, at $1 million and $500,000, respectively, MarketWatch reports, adding that homeowners may want to take out a home equity loan, which is subject to the same monetary limits and requirements for use.
Buying a home usually works out to be a pretty good proposition tax-wise. And if you eventually sell for a nice gain down the road, the tax results can be excellent. If you qualify for the valuable principal residence gain exclusion break, a married couple can avoid paying any federal income tax on up to $500,000 of home-sale profit. For unmarried individuals, the maximum tax-free profit is $250,000.
