For more than 20 years, Guarantee Mortgage has been helping families navigate the financing of real estate in the Bay Area. That navigation got a little more complex when the Tax Cuts and Jobs Act was signed into law in December, but Guarantee Mortgage is here to provide clarity.

The bill impacts homeowners and home buyers as it changes the credits and deductions available in 2018.

For example, mortgage interest deductions will be reduced from $1 million to $750,000 for purchases made after Dec. 16, 2017. The refinance of a home that was purchased prior to Dec. 16, 2017 may be able to have a grandfathered deduction limit, however.

Property, state and local income taxes will have a $10,000 combined deduction limit, but this precludes 2018 state and local income taxes if prepaid in 2017.

Another change is that mortgage interest on a second home is part of the combined total limit of $750,000. If the interest paid on the two properties exceeds that amount in 2018, it will not be deductible. (A rented second home is not subject to these changes.)

Interest on home-equity loans will only be deductible if the loan was used to substantially improve a residence in a documented manner. This will require a tax professional’s assistance to navigate.

And good news for Mortgage Credit Certificate holders – this bill retains the MCC option. If you aren’t familiar, an MCC allows homebuyers to write off 20 percent of their mortgage interest paid annually. This forecasted savings can – in some situations – be applied to available income when applying for a home loan, and allows the buyer to get a larger loan amount.

The exclusion of the gain on sale of a principle residence also is retained under the law. This means that sellers can exclude up to $500,000 from capital gains taxation on a sale.

Our process at Guarantee Mortgage is about helping the client make an informed decision and pursuing all available options. We try to educate consumers, guiding them and advocating for them throughout the process. Understanding how these tax changes affect the consumer is part of our obligation to those in the Bay Area who are looking to purchase or sell a home.

If you have any further questions, don’t hesitate to reach out to one of our loan professionals.