As part of the recent tax reform, the Tax Cuts and Jobs Act of 2017, the deduction for home mortgage interest and property taxes has undergone substantial alterations. These changes will impact most homeowners who itemize their deductions each year.

Mortgage Interest – Prior to the tax reform, a taxpayer could deduct the interest he or she paid on up to $1 million of acquisition debt and $100,000 of equity debt secured by the taxpayer’s primary home and/or designated second home. This interest was claimed as an itemized deduction on Schedule A of the homeowner’s tax return. This tax deduction was often cited as one of the reasons to purchase a home, rather than renting a place to live.

Qualified home acquisition debt is debt incurred to purchase, construct, or substantially improve a taxpayer’s primary home or second home and is secured by the home.

Home equity debt is debt that is not acquisition debt and that is secured by the taxpayer’s primary home or second home, but only the interest paid on up to $100,000 of equity debt had been deductible as home mortgage interest. In the past, homeowners have used home equity as a piggy bank to purchase a new car, finance a vacation, or pay off credit card debt or other personal loans – all situations in which the interest on a consumer loan obtained for these purposes wouldn’t have been deductible.

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