New Tax Law Has Negative Side Effects for Retirees
New Tax Law Has Negative Side Effects for Retirees
Getting ready to retire? Just recently called it quits? If you haven’t already filed your taxes, then you might be in for some surprises, thanks to the new tax laws. Retirement is supposed to be a bed of roses, but of course, life doesn’t always go as planned. So what changes do you need to know about taxes in retirement that could have a big impact?
Property Tax Deduction Is Limited
Perhaps the biggest change is the limit on the property tax deduction. This change is hurting taxpayers from all walks of life, not just retirees. The problem is the amount of property taxes you can deduct is now limited to just $10,000. So, if you have more than that you’re out of luck. Unfortunately, many retirees do pay more than $10,000 in property taxes.
If your property taxes are less than $10,000 this change won’t affect you. However, if you own a second home, or had plans to purchase a second home, this new limit could change your plans.
Mortgage Interest Deduction Is Down
Another strike against owning a second home is the change to the mortgage interest rate deduction. The rate hasn’t changed for homes purchased before January 1, 2018. But if you want to purchase a new home now, you can only deduct interest on mortgages of up to $750,000. That number is down from $1 million under the old law. That means, if a second home was part of your retirement plans, you could have to reconsider.
Home Equity Loan Rules Have Changed
Under the previous system taxpayers used home equity lines of credit as a great way to make purchases on non-housing items. Well, no more, under the new system. You can still use these types of credit lines for other things besides your home, but you can no longer deduct the interest from these credit lines, unless you use the money on the home for which the loan was borrowed. It’s another rule change that could affect your retirement plans.
Fewer Combined Itemized Deductions
The $10,000 limit on the SALT deduction has been tough on many taxpayers, especially those that live in high tax states. In the past you could deduct the entire amount of your state, local, real estate and sales taxes. For those with higher taxes, this was a huge benefit. However, that has changed because the SALT deduction has been capped at $10,000. That means, no matter how much you pay in these taxes combined, you only get to deduct $10,000. This is another downside to purchasing a second home in retirement, as you could only deduct the mortgage interest from one of both homes up to $10,000.
Investment Management Fees Aren’t Deductible
Another common source of income for retirees, and the ultra wealthy, is investment funds. And many investors, especially retired investors hire someone to manage their investments. In the past, you could deduct the fees for investment management. But under the new law, these fees are no longer deductible. This could especially hurt more affluent retirees.
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