Published by REALTOR.com | March 8, 2021
The Mortgage Bankers Association estimated that lenders originated some 7.1 million refinance loans last year.
As interest rates plummeted throughout 2020, mortgage refinancing became a major avenue to saving money in the midst of the coronavirus pandemic. But those who took the plunge need to be aware of how opting to refinance could affect their taxes insofar as deductions are concerned.
The Mortgage Bankers Association estimated that lenders originated some 7.1 million refinance loans last year. “The vast majority of owners are not even going to qualify to take the tax deductions,” said Holden Lewis, housing and mortgage expert at personal-finance website NerdWallet.
The Tax Cuts and Jobs Act of 2017 ultimately kept the mortgage interest deduction around, albeit with some changes, after some suggested the GOP may decide to jettison it.
But the Republican tax preform package did expand the standard deduction to $12,000 for individual filers and $24,000 for joint returns. In expanding the standard deduction, Republican lawmakers created a high bar for itemizing deductions to make more financial sense for taxpayers.
And with interest rates currently so low, most homeowners won’t be paying enough in interest each year for the deduction to be worthwhile, unless they have other deductions they can avail themselves of, experts say.
As a result, only “a really small subset of homeowners” need to worry about how the mortgage interest deduction was changed,” Lewis said.
The Tax Cuts and Jobs Act narrowed the amount of mortgage debt on which the interest is deductible. Prior to the legislation, homeowners could deduct interest on up to $1 million in mortgage debt if the original loan used to buy, build or improve a home was originated between October 1987 and December 2017. (For loans on homes purchased before 1987, mortgage interest on the total loan amount may be deductible, depending on eligibility.)
After the tax-reform package became law, the mortgage interest deduction limit was lowered. From 2017 onward, homeowners could only deduct interest on up to $750,000 in mortgage debt used to buy, build or improve a home. Homeowners with pre-existing mortgages were grandfathered in, meaning they could still deduct up interest on up to $1 million in mortgage debt if they received the loan before the 2017 cut-off.
So what does this all mean if you just refinanced last year? Continue Reading