Your Financial Advisor and the TCJA; Notable Tax Changes for Residential Homeowners

A good financial plan takes in many different considerations. Investments, of course, are a top priority, but a good financial advisor should also understand your retirement plans, financial goals (kids’ college funds, care for aging parents, etc.) and tax concerns. Topics that may not be part of a firm’s expertise should be followed up with a true professional. Your advisor may be able to recommend someone.

With that said, some of our clients have come to us with issues regarding the Tax Cuts and Jobs Act (TCJA), passed in 2017.

After its passage, there has been some understandable confusion for homeowners about how they can continue to maximize tax deductions each year. As homeownership and tax benefits have historically had such a high correlation, it is important to be aware of the (new) facts after the TCJA as well as the most commonly misunderstood changes.

Here are some issues that have come up for some of our clients:

HELOC vs. Mortgage Deductions

The TCJA allows for a mortgage interest deduction on the first $750,000 of a home loan (compared to $1 million before the law, although established mortgages are grandfathered in at this higher amount). This deduction only applies, however, if you can show “acquisition indebtedness.” As long as funds from a mortgage – or any other home financing – were used “to acquire, build or make substantial improvements” to the primary residence securing the loan, that interest remains eligible for the deduction.

Where confusion rightfully enters the conversation is in the type of funds secured. HELOC and home equity loans can still qualify for this deduction provision if they are used to meet the acquisition indebtedness requirements. Likewise, a traditional mortgage can be disqualified from receiving an interest deduction under the new rules if it was refinanced and any cash taken out was used for anything other than those criteria mentioned before. It doesn’t matter what your loan is called; the use of funds is what makes it eligible or ineligible for the interest deduction.

Primary vs. Vacation Home Allowances

For those who own more than one home – or in many cases, a vacation home – the mortgage interest deduction is still in play. The new law allows the same perks for a second home as the first, although the total limits for all homes still apply. Second homes benefit from the same grandfathered provision for mortgages originated prior to the TCJA and are subject to the same caps.

Cost Basis Tracking

While tax forms before the changes from the TCJA don’t get into the type of detail that will now be required to determine acquisition versus equity debt, homeowners aren’t off the hook. It’s up to the taxpayer to know how much of every dollar has been spent to pay principal and interest, as well as to fund home improvement projects of every size. Keep receipts and track all of your mortgage and HELOC-funded spending so that you can provide accurate tax reporting each year.

The Home Sale Tax Exclusion

There is good news for anyone selling a home. The TCJA keeps the rules in place that prevents $250,000 profit from the sale of a qualified home from being taxable for single filers on their federal return. That number doubles to $500,000 for joint married filers.

Real Estate Tax Cap

Perhaps the most controversial portion of the new law affects state and local property taxes. Before the regulation, these costs were deductible – with no upper limit – on a federal, itemized return. Now, the maximum that can be deducted is $10,000, regardless of which state you call home. This new cap is most likely to negatively affect homeowners in states with high property taxes and homeowners who used the previously unlimited deduction to get some relief from growing property tax burdens.

This first filing season under the new rules should be interesting for both filers and preparers, as many are still getting a grasp of the changes. Several of the real estate perks enjoyed in the past are still here but are now limited in their benefits to homeowners.


Williams Asset Management does not provide legal or tax advice. You should consult a legal or tax professional regarding your individual situation.

Co-authored by Gary Williams, CFP®, CRPC®, AIF® and Nicholas Ibello, CFP®, AIF®.

Gary Williams, CFP® and Nicholas Ibello, CFP® are Wealth Managers with Williams Asset Management. Williams Asset Management is located at 8850 Columbia 100 Parkway, Suite 204, Columbia, MD 21045. They offer advisory services as Investment Adviser Representatives of Commonwealth Financial Network®, a Registered Investment Adviser. Fixed insurance products and services offered by Williams Asset Management. For additional information about the services of Williams Asset Management, please call (410) 740-0220 or email at © Williams Asset Management. For more information about Williams Asset Management, please visit


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