In the past you probably took the standard deduction when you filed your federal income taxes. But once you own a home, itemizing may make sense — and save you a lot on your tax bill. However, under the Tax Cuts and Jobs Act, which passed in late-2017, the deductions aren’t as generous as they once were.
Before then, you could deduct interest on a mortgage of as much as $1 million ($500,000 if you’re married and filing separately). Since the Act passed, you can only deduct interest on as much as $750,000 ($375,000 if you’re married and filing separately). You can also still deduct interest on a second home, but total mortgage interest (for all homes) is capped at $750,000.
The law also caps the amount of state and local property taxes you can deduct at $10,000 ($5,000 if married filing separately).
In the year you buy a house, you can still write off discount points you may have paid in exchange for a lower interest rate on your mortgage, as well as deduct points that the seller paid for you.
In late 2019, Congress retroactively extended the deduction for mortgage insurance premiums for 2018, 2019 and 2020 federal returns.
SEE ALSO: 13 Tax Breaks for Homeowners and Buyers and Home Buyers