On December 22, 2017, the tax bill known as the Tax Cuts and Jobs Act was signed into law by the President. Amongst the many areas of the tax code that the TCJA affects, real estate taxes and mortgage interest deductions are some of the biggest changes.
Two of the most discussed provisions in the TCJA affecting California are the State and Local tax (SALT) deductions and the mortgage interest deduction The TCJA imposes a $10,000 combined cap on all SALT deductions whether they are for real property taxes, state or local income taxes, or sales taxes. This will primarily affect high-tax states such as California. The $10,000 limit applies to both single and married filers and is not indexed for inflation.
The mortgage interest deduction for existing mortgages of up to $1 million taken out before December 15, 2017, will not be affected. Homeowners may also refinance mortgage debts existing on December 14, 2017, up to $1 million and still deduct the interest, so long as the new loan does not exceed the amount of the mortgage being refinanced.
For any new loans, however, the cap for deduction will be $750,000. Deduction of interest on loans secured by a second house will still be allowed subject to the $1 million and $750,000 caps.
The interest on home equity loans will only be deductible if the proceeds are used to substantially improve the residence.