The tax benefits of homeownership have diminished significantly since the Tax Cuts and Jobs Act of 2017. Many borrowers still believe homeownership delivers major annual tax savings. Before letting that assumption drive a purchase decision, MLOs should understand which benefits are real and who actually qualifies to use them.
The Standard Deduction Threshold Problem
The primary reason most homeowners do not receive meaningful tax benefit from their mortgage is that the standard deduction is high enough to exceed itemized deductions for most households. If a borrower's total itemized deductions (mortgage interest, property taxes, state income taxes, charitable contributions) do not exceed the standard deduction, they receive no tax benefit from owning. Only borrowers who itemize actually benefit from the deductions below.
Deductions That Still Apply
- ✦Mortgage interest: deductible on acquisition debt up to $750,000 for loans originated after December 15, 2017 (grandfathered at $1,000,000 for pre-2018 loans)
- ✦Property taxes: deductible but subject to the $10,000 SALT cap combined with state income taxes
- ✦Capital gains exclusion: up to $250,000 for single filers and $500,000 for married filing jointly on sale of primary residence (Section 121)
- ✦Home office deduction: available for self-employed individuals who use a portion of the home exclusively for business
Home Equity Loan Interest
Interest on home equity loans and HELOCs is deductible only if the proceeds are used to buy, build, or substantially improve the home securing the loan. Cash-out for personal expenses, debt consolidation, or other purposes does not generate a deductible interest expense. This rule applies to both acquisition debt and home equity debt post-TCJA.
Aria can walk through the actual tax math for a specific borrower scenario and help you set accurate expectations before recommending a purchase. Ask at vicariointel.com.
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