This Article Is About Tax Cut And Jobs Act And How It Affects Mortgage Guidelines

Well, we all survived the first tax season with the new Tax Cut and Jobs Act. There are quite a few changes with the current tax law.

• The current Administration is attempting to fix loopholes with the tax system
• This tax cut was passed in December 2017
• One of the largest changes was the removal of itemized deductions
• These changes were put in place to lower the tax burden on the common American citizen
• We will detail how the new tax law affects your mortgage qualifications and mortgage-related tax deductions

What Changed With The Tax Cut and Jobs Act?

One of the biggest changes with the new tax code is the cap on mortgage interest deductions.

• In the past when you itemize your tax returns, you could deduct any interest payments made up to $1,000,000 and home-related debt
• Under the new tax law, you may now only deduct mortgage interest paid up to $750,000 on your first or second home
• This new law only applies to homes purchased after December 15th, 2017
• All of your properties purchased before December 15th, 2017 are grandfathered into the old tax code
• So, if you are paying interest on debt between $750,001 and $1,000,000 related to a home you bought before that date, your deductions will remain the same
• However, if you purchase a new home with a mortgage over $750,000, you will have fewer deductions than you would have under the old law
• If you are a homeowner who is paying interest on a mortgage over $750,000 and purchase the property prior to December 15th, 2017, you may want to stay in that home for a while
• Purchasing a home at a comparable purchase price may reduce the amount of mortgage interest you’re able to deduct under the Tax Cut and Jobs Act

Long story short, if you own a property that is grandfathered into the old tax laws, you may want to stay put.

Other Changes With The Tax Cut And Jobs Act

Here is other changes with the Tax Cut And Job Act:

• Another change with the Tax Cut and Jobs Act is a $10,000 cap on property tax deductions
• In the past, homeowners have been allowed to deduct all state and local taxes they paid on properties they own
• This included your primary home, second homes, and investment properties
• Under the new tax law, homeowners were only able to deduct up to $10,000 a year in state and local tax (SALT) for primary and secondary homes
• This is a tough pill to swallow for citizens in states that have high property taxes such as New York, Illinois, California, Maryland, Massachusetts, Rhode Island, New Jersey, and Connecticut, just to name a few
• For the tax year 2014, New Yorkers’ filed an average of over$20,000 in State and local taxes, which is double the allowed amount under the new tax code
• This is a major change to the tax code and this may deter people from purchasing additional properties or homes with high property taxes
• The tax write-off under the old tax code was used by many Americans who owned investment properties
• There’s not much you can do, if you pay more than$10,000 a year in state and local taxes you will only be able to write off the first $10,000 of the said amount

If you have been planning to move out of your high property tax state, this new tax law could make you move sooner than later. Plenty of states such as Kentucky, Colorado, and Texas are seeing people move in by the thousands.

Benefits Of The Tax Cut And Jobs Act

The two changes above sound like they hurt the American people:

• However, the majority of Americans do not have over $750,000 of mortgage debt and do not pay over $10,000 a year in state and local taxes
• This is where the new tax law benefits the average American
• Homeowners who have itemized their deductions in the past may be feeling frustrated under the new tax season
• But the good news is there’s a light at the end of the tunnel
• Under the Tax Cut and Jobs Act, there was a substantial increase to the standard deduction

Standard Deductions On Tax Cut And Jobs Act

The standard deductions have nearly doubled, see below;

• $12,000 for single filers
• $18,000 for the head of household
• $24,00 for married couples filing jointly

It is estimated that the increase in standard deductions will allow you to save more money on your taxes versus itemizing under the old tax code.

• The Team at Gustan Cho Associates are NOT certified tax professionals
• We recommend you talk with your certified public accountant (CPA) for more specifics about the new Tax Cut and Jobs Act
• If you are planning ahead, you may want to create strategies with your certified financial planner do you save money on future taxes

What many Americans do not know is the Tax Cut and Jobs Act is;

• This is an eight-year plan
• Meaning, there is a strong chance the tax code goes back to the old tax code as soon as 2025

Changes To The Tax Code And Effect On Debt-To-Income

The form 2106 on federal tax returns has been REMOVED.

• Civilians are no longer allowed to subtract unreimbursed business expenses
• Military personnel may still write off moving expenses
• Under the new tax code, your 1040 tax return was reduced from 79 lines to 23 lines
• The nickname for this reduction is the“postcard” return, for the size of your 1040
• Since you may no longer write off on reimbursed business expenses, tax returns are not always required to close on a mortgage
• We offer many W2 only mortgage programs
• Both Freddie Mac and Fannie May have announced these changes
• Many schedules such as Schedule C, Schedule E, 1065,  and K-1s have remained the same under the Tax Cut and Jobs Act

The corporate tax rate was lowered from 35% under the old tax code to 21% under the Tax Cut and Jobs Act, so form 1120 adds more income for corporations.

Mortgage Guidelines Changes With Tax Cut And Jobs Act 

If you are a W-2 employee and also have a self-employed side business, the self-employed loss may not necessarily be counted against you.

• The lender must prepare an evaluation of the self- employed borrowers’ personal income
• Including the business income or loss, reported on tax returns
• But this is not a requirement when the borrower’s income from their W-2 position qualifies them for a mortgage

When the income is not derived from self-employment and the self-employment is a secondary source of income, the loss may not be counted against you.

Fannie Mae Guidelines On Tax Cut And Jobs Act

See FANNIE MAE’S GUIDELINE quoted below:

What If You Have Not Filed Your Taxes?

Thousands of Americans have not filed their tax returns for the current tax year.

• Many of these individuals legally have an extension and some do not
• There are also thousands of Americans who have not filed their tax returns for many years
• While we do not recommend this, we still have a loan program available to you
• We do offer BANK STATEMENT LOANS for self-employed individuals that do not do a tax return verification

Please call Mike Gracz at (800) 900-8569 for more details on our bank statement mortgages.

Start Your Mortgage Process With A Direct Lender With No Overlays

The majority of Americans do not fully understand tax returns. Even more, Americans have no idea where their tax dollars are going. No matter what your stances on taxes, this information can be quite confusing. We recommend that you reach out to us directly for any mortgage-related questions. Gustan Cho Associates are up-to-date on the new tax guidelines. We are available seven days a week, including holidays. Please reach out directly to Mike Gracz on (800) 900-8569 or sent him an email gcho@gustancho.com.