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New Tax Bill SALT and Mortgage Interest Deductions and How It May Affect You

State and local tax deductions are capped at $10,000

(Disclaimer: I am not a tax expert and do not take this information as tax advice. I've just collected some news reports and I'm repeating what I heard here)

Currently, taxpayers can deduct what they pay in state and local property, income, and sales taxes from their federal returns. The new law caps these deductions—which can be any combination of property, income, and sales taxes—at $10,000. If you live in a coastal city with high local and state taxes—and particularly if you own a home on which you pay property taxes—this could have a significant impact on your final tax bill, even with the lower rates and doubled standard deduction. This will affect a number of homeowners with higher -priced homes in and around the Greater Seattle Area. But the fact that Washington State does not have income tax means it probably won't impact as many people here as it will in California and Oregon.

Below, you can see how often SALT deductions are claimed in your area to see if this will impact you.

The cap on mortgage-interest deduction drops from $1,000,000 to $750,000 (or $375,000 if you use married filing separate status)

The new cap won’t apply to existing mortgages, just new ones. And because of the doubled standard deduction, this may not affect you if you forgo itemizing. Starting next year, the new law also eliminates the old-law rule that allowed interest deductions on up to $100,000 of home-equity (HELOC) loan balances.

Home Sale Gain Exclusion Remains the Same

The new law preserves the valuable break that allows you to potentially exclude from federal income taxation up to $250,000 of gain from a qualified home sale, or $500,000 if you are married filing jointly. The earlier House and Senate bills were talking about restrictions on this, but none of the proposed changes made it into the final bill. So it’s that hasn't changed.