There are numerous benefits of being a homeowner owning homeowner in the United States. This includes security, stability, wealth creation, and the joy of owning your own house. From a tax point of view among the more appealing benefits of having a home to have to do with the mortgage deduction blue world city. In essence, this portion of tax law (sec 164) permits taxpayers to deduct the interest on their mortgages up to a specific amount from their income.

One of the most unique aspects for an amortizing loan how the principal and interest are distributed throughout the life of the loan. The first 10 years of a thirty-year mortgage loan is heavily weighted toward interest payments and the last ten are heavily weighed toward principal payments, and the middle ten are a mix of the two. Because the majority of the first ten years of a mortgage's existence is spent funding interest, homeowners who are new are likely to be tempted to deduct those interest payments from their income. This is a huge tax saver and is a compelling motive to own instead of to rent.

Under the previous tax code the couple who filed jointly was able to get the interest paid on a loan up a $1,000,000. Single filers were eligible to deduct interest on loans of $500,000. Changes that were enacted into law with the new Tax cut and Jobs Act' reduce the deduction amount for loans of up to $750,000 to joint filers, and $375,000 for single filers. If you held an existing loan of less than $1,000,000 in the instance of joint filers, and less than $500,000 for single filers, prior to when the law was passed and enacted, you will be grandfathered and allowed to continue to claim interest. The total loan amounts can be divided between the homeowner's principal residence and a secondary one provided that they do not exceed $750,000 or $375,000 , respectively. A change to the previous law is that interest paid for home equity loan that are up to $100,000 can no longer be tax-deductible. This has been eliminated and is no longer applicable.

How will this impact the residential real estate market? First, it is important to know that 94% of all mortgages throughout the US are for lower than $750,000. The areas with loans larger than $750,000 will be restricted to a handful of states like New York, New Jersey and California. A loan amounting to $800,000 would typically be equivalent to a $1,000,000 sales price , with an 80/20 loan-to-value (LTV) percentage. In some markets such as Manhattan the amount would currently buy a one-bedroom apartment. The question to be addressed is whether someone with the means to purchase a $1,000,000 property will decide to "downgrade" to a $750,000 property due to the loss in the interest write off. While this could be the case but it's difficult to imagine that it would be an event that is widespread.