Without action from Congress, there will be a slew of tax changes for all Americans at the end of 2025, regardless of who is elected President in November. Many provisions of the Tax Cuts and Jobs Act (aka the Trump Tax Plan) will expire. Four of these expirations could help many homeowners.
While December 31, 2025, may seem lightyears away, homeowners need to be aware of the potential changes that are coming in terms of tax planning. If you already own a home, you could see renewed tax savings if the TCJA is allowed to expire. For aspiring homeowners, your dream home may become a bit more affordable if the tax benefits of homeownership revert to their pre-Trump levels.
Increased Property Tax Deduction
The Trump Tax Plan was rough on homeowners in areas with a high cost of living. The TCJA of 2017 limited the amount of state and local taxes (SALT) that a person could deduct at just $10,000. This number has not been indexed for inflation, meaning it has been less valuable over time. There is also no distinction between those filing single or married and those filing jointly. In plain English, two individuals would be entitled to $20,000 in total SALT deductions. A married couple would be entitled to just $10,000 in SALT deductions.
SALT deductions are significant to high-income individuals in high-tax states like California or New York. The SALT cap also limits the deductions for property taxes, which means higher taxes for many homeowners in states without an income tax, like Florida, Nevada and Texas.
It does not take a high home value to generate $10,000 or more in property taxes. Property taxes are pretty high in Texas, and you could hit the $10,000 SALT cap with a home that costs just $565,000. This assumes no other state and local taxes on your income.
If you buy a home in California, you will hit the SALT cap in property taxes alone with an $800,000 home. Of course, with California’s progressive tax system, you would likely hit the SALT cap with a more modest house, assuming you had an income to pay the mortgage and taxes on your home. I must also point out that the median listing home price in Los Angeles County was $1 million in June 2024, according to Realtor.com.
As a Los Angeles-based financial planner, I hope this annoying part of the Trump Tax Plan will expire. This will help many of my friends and clients take the full tax deduction for all of the state and local taxes they pay.
Increased Mortgage Deduction
In 2007, when I purchased my first home, buyers could deduct the interest on the first million of mortgage debt. That number was the same whether it was your first mortgage or you’d pulled some of your equity out of the home.
As it stands now, through the end of the tax year 2025, you can deduct home mortgage interest on the first $750,000 of loans. The TCJA also limits deductions for mortgage debt not specifically tied to purchasing your home.
If TCJA is allowed to sunset, the amount of mortgage interest you can deduct will increase back to $1 million ($500,000 if filing separately) of your mortgage.
While this may not seem like that big of a difference, with the huge housing shortage across much of the US, more and more homeowners will have mortgages at or above $750,000 and $1,000,000.
Considering how hard it has been for younger borrowers to afford a home at today’s prices, it seems they would appreciate any additional tax benefits that may come their way.
Moving Expense Deduction May Return
The moving expense tax deduction may be coming back if the TCJA expires. This means that if you relocated for work, you could deduct the cost of moving from your taxes. If you’ve ever moved, you know how expensive and stressful it can be.
Just so you know, during tax years 2018 through 2025, if you moved for work and your employer paid for your relocation, the cost of the move was considered compensation. This means you had to pay taxes on the cost of moving. Ouch! If you had known this in advance, you may not have schlepped that Ikea couch across the country.
Home Office Tax Deduction Could Be More Beneficial
As many of you ended up working from home during the COVID pandemic, you were probably disappointed to find you were not entitled to the home office deduction unless you were self-employed.
If the provisions regarding the home office deduction are allowed to expire, millions of hard-working Americans who spend some portion of their workweeks laboring from home could see a fairly substantial tax break.
If we assume the old rules return, W-2 workers would be eligible to take tax deductions for a wide range of unreimbursed work-related expenses, including mileage, home office supplies, union dues, uniforms, internet, telephone, internet, utilities and even meals.
I would never recommend that someone buy a home solely for tax benefits. That being said, the tax advantages of owning a home can help make this investment more valuable in the long run. Expect changes or adjustments to our tax system regardless of whether Trump or Harris is elected President in November.
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