Homeowners are affected by Tax Cuts and Jobs Act (TCJA). The law has done away with two much-used tax breaks while not touching the third one. It is a complex scenario. The TCJA for the 2018 to 2025 period remodels the existing deal by restricting the itemized deductions for a number of taxes like local property and personal state taxes and local income and personal state taxes to a maximum of a meager $10,000. For those married but filing separate status, the amount is $5,000. There will be no deduction from taxes imposed on foreign real estate property held personally. It follows that the days of deductions from the property taxes are gone.
These TCJA changes will negatively affect individuals paying steep taxes on their property. This happens if they reside in an area with a premium property tax jurisdiction. Owners of high-priced homes will also suffer due to a near punishing property tax bill. The changes will also affect in a bad way those who own a primary residence and multiple vacation homes. This will invariably result in a larger tax bill. People in this category can now claim a deduction of maximum $10,000 of both the local property and personal state taxes. Nothing will be deducted from the local income and personal state taxes or the general sales taxes.
It is to be noted that not a single one of the preceding taxes are applicable if the owner has a sufficient number of itemized deductions in 2018 to surpass the permitted standard deduction. Not many people are valid under this condition as per the new law. This is as the TCJA nearly doubled its standard deductions for the year 2018 when compared to 2017. Not many cheating opportunities exist with all due deductions for the actual property taxes. The sole way for deducting in excess of $10,000 (or $5,000) is that if the person owns a residence which is utilized partly for business. It can also be partly rented out. In such situations, there is a chance of deducting the property taxes applicable to such businesses or the rental use over the $10,000 limit. These could be subjected to the deductions which are allocable to these uses.
This does not mean all doom and gloom. The TCJA maintains the break which permits the owner to exclude themselves from income tax of maximum $250,000 which is gained from any qualified home sale. The amount comes to $500,000 in case of a married joint filer.