Early Saturday morning, December 2nd, the Senate passed its version of the proposed tax bill. The House already passed its own version about two weeks ago. The two versions are different, so the bills now go before both houses to be reconciled before final passage.
Both the mortgage interest deduction and the deduction for your home's property taxes are in play. Here's how each bill addresses those issues:
House Bill: the House bill caps the deductability of your property taxes to $10,000 per year. So if your annual property taxes are higher than $10,000, which is highly probable in California, you will lose the ability to deduct the full amount of your property taxes. You will only be able to deduct up to $10,000 per year.
The House bill also caps your ability to deduct your mortgage interest to that paid ONLY on the first $500,000 in mortgage indebtedness. Again, this is very important to Californians where in some locals it can be hard to find a 1 bedroom condo for $500,000.
Senate Bill: the Senate bill had some very last minute changes which make that bill more favorable to homeowners than the House version. The Senate bill, which originally completely eliminated the deduction for property taxes, now matches the House version and caps that deduction at $10,000 annually.
With regard mortgage interest deductibility, The Senate bill keeps the law as it is now, which means you could still deduct interest payments on up to $1 Million in mortgage indebtedness if this provision is kept in the final version of the law.
Exclusion of Income Upon Sale of the Home.
Both the House and Senate bills includes a provision that the current law's exclusion of the first $250,000 of gain from the sale of a principal residence ($500,000 if married filing jointly) is retained but the proposal limits the exclusion to apply only once per taxpayer during any five-year period, extends the length of time a taxpayer must own and use a residence to qualify for this exclusion from two of the five years ending on the date of the sale to five of the eight years ending on the date of sale, and phases out the exclusion for those earning more than $250,000 ($500,000 if married filing jointly) so that it is completely phased out for those earning more than $500,000 ($1,000,000 if married filing jointly). Property already purchased as well as certain property already under contract will continue to be subject to the old mortgage interest deduction rules.
Congress hopes to reconcile these two bills before the end of the year so stay tuned. For help in understanding any of this, don't hesitate to contact me. I'm happy to help explain.