Newsletters & Research

To join one of our email mailing lists please complete the following form.

Please select your subscription preferences

Market Commentaries
Webinars and additional research
Workshops and Events
« Back to Blog

Homeowners Take Note: Changes in the New Tax Law Could Affect Your 2018 Tax Bill

By Timothy Hewitt

With tax day comfortably behind us, it may feel like it's time to brush the dirt off our hands until it rolls around again next year. But it's never too early to start thinking about taxes-particularly this year, because of tax law changes in last December's Tax Cuts and Jobs ACT (TCJA) that affect homeowners.

The TCJA has weakened key benefits for homeowners, including reducing the mortgage interest deduction and implementing a cap on deductions for state and local property taxes. These changes could have an impact on your 2018 taxes, but careful tax planning now can help you minimize the effects.

Here's a look at what the changes are, who they affect, and what you can do about it.

The tax changes explained

The first major tax change to affect homeowners is the reduced mortgage interest deduction. Where once homeowners could deduct up to $1 million in mortgage interest, homeowners may now deduct only up to $750,000. Any loans taken out after Dec. 15, 2017 are subject to the new rules, while existing home loans have been grandfathered into the old limit of $1 million.

The second major change is a limit on deductions for state and local property taxes. Homeowners may now itemize and deduct only up to $10,000 worth of combined state and local property tax, versus the previous rule that allowed deductions for the full value of state and local taxes. Unfortunately, other state and local taxes, including income tax, also are factored into this new rule.

This change will have a particularly large effect on people with high incomes and expensive homes. For example, if you previously owed $9,000 in state income tax and $12,000 in real estate tax, you would have received a $21,000 deduction. Now, you are limited to a $10,000 deduction.

The good news is that in addition to the above changes, the new tax law also raised the standard deduction to $12,000 for single filers and $24,000 for couples. If your itemized deductions typically are below that threshold, the limits on state and local tax deductions won't have much of an effect on you. In fact, the new standard deduction may make filing your taxes easier.

Who will be affected?

These new tax rules will have an outsized effect on coastal states with higher property values and high state and local property tax rates. For example, state and city property taxes on an expensive home in Philadelphia could easily exceed the new $10,000 deduction limit, especially when coupled with Philadelphia's city wage tax and Pennsylvania income tax.

The limit on mortgage interest deductions will have a particular effect on homeowners looking to buy expensive new homes or multiple homes. What's more, homeowners who restructure or refinance a large mortgage in the future could potentially lose out on their full mortgage-interest deduction.

What can you do?

For years, being a homeowner provided important tax benefits that made buying a home more appealing. As a result of these tax changes, we're already seeing behaviors in the housing market shift. Many homeowners are considering or are accelerating plans to downsize, moving from large suburban homes to smaller properties in walkable town centers. People in the market for a home may also consider the benefits of renting, at least temporarily.

If you have itemized deductions above the new limit, or if you have more than $750,000 in mortgage interest deductions, tax planning throughout the year is key. We recommend sitting down with your advisor to review your 2017 tax returns and conduct a pro forma analysis that projects what your 2018 return might look like. If there is an increase in your tax bill, there are strategies that may help lessen the burden. For example, it might make sense to:

  • Adjust withholding on your W4 to ensure the appropriate amount of taxes are withheld throughout the year.
  • Reduce taxable income by increasing savings in tax-advantage retirement accounts.
  • On investment properties, consider accelerating depreciation to increase deductions in the early years of ownership
  • Bundle charitable deduction, i.e., making multiple years' worth of charitable gifts in one year to boost the current year's tax deduction.


The appropriate strategies will be based on your own financial plan, so consult with a financial advisor and tax advisor to decide which work best for your situation. But this upfront effort can pay off in the form of lower taxes come next April.