While most people in Illinois know that income tax money funds many programs and services, it is understandable that residents wish to keep their tax liabilities to reasonable levels. The ability to deduct certain items from a tax return allows consumers the chance to do this. When the new Tax Cuts and Jobs Act went into effect, the tax deduction system that many people knew and leveraged for so many years changed dramatically. Many of the changes initiated by the new law related to real estate ownership. Understanding these changes is important for all homeowners or would-be home buyers.
Before the new tax code, homeowners could deduct all of the money they paid in home loan interest on loans up to $1 million. According to MarketWatch, that threshold has now been lowered to $750,000. The new tax laws also changed other criteria related to the deduction of home loan interest on individual income tax returns.
The former tax code allowed people to claim the interest deduction on loans taken for home improvement regardless of what the money was spent on. For example, a family could have taken a home equity loan and used the funds to pay for their child’s college education. Interest paid on that loan would have been deductible under the old code but is no longer. Home equity interest may be deducted today only if the money was used to fund actual improvements to the property.
NerdWallet notes that there are some benefits to the new law, including the ability to exclude capital gains on home sales up to $500,000. Illinois homeowners can benefit by consulting with a tax law attorney to determine how the tax code may affect them.