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If you’re in a state of panic and a little lost in trying to determine what all is about and your family, you’re not the only one. A frequently asked concern I’ve encountered so far concerns whether the current limit of $10,000 on local and state taxes (SALT)/property taxes as well as the lowered limits on mortgage interest deduction will affect real property investors. Let’s look at.

The following information applies to 2017 tax returns to be due in 2022:

Homeowners

● Taxes on property — Deductible in full on the Schedule A (you must list).

● Mortgage interest is deductible at full (on both second and first mortgages) on Schedule A when your debt falls into one among the below categories (you must list):

● The mortgage was paid off prior to the 14th of October 1987.

● Mortgages obtained on or after the 13th of October, 1987, total $1 million ($500,000 when you are married and filing your own separate tax return) (or less) (in the total).

● The home equity loan (not used to purchase the home you live in) that was taken out following the 13th of October, 1987. Total $100,000. ($50,000 when married filed separately) at least. The interest is tax-deductible regardless of what the cash generated by the mortgage equity loan is used for.

● If your mortgage balance is higher than the limit set in the third and second bullets above the deduction for mortgage interest will be restricted based on how much your mortgage.

Investors

● Property taxes for rental properties are deductible in entirety in schedule E in addition to rental revenue.

● Home equity and mortgage rent interest from rental homes Tax-deductible at full amount on Schedule E for rental income.

● As you can see, there aren’t any limitations on the deduction of the mortgage and property tax for property investors. If the deductions result in an increase in rental income then the reusability of the loss may be limited, but. However, that’s a topic to be discussed on a different day.

Tracing Rules

Another question that I’ve often received is

What will happen if I obtain an equity loan for my home or the home equity line of credit (HELOC) and make use of the money to buy an investment house? Can the interest be refunded?

There is a solution in trace rules.

The deduction of interest is based on the utilization of the proceeds of debt service and not on the source. The money is required to be “traced”, or tracked to calculate the tax deductibility of interest. In the event that money was taken out against your home and you decide to use the funds to purchase an expensive car or to go on a family trip, I have negative information that you should know… There is no way the interest you pay will be tax exempt from tax. If you decide to use the money to purchase an Investment Property the money is traced back to the rental property and be taken out in full in Schedule E against the rental income.

For skimmers this is the brief summary…

Beginning in the year 2018, homeowners will be restricted to a total deduction of $10,000 for state, local and property taxes. The limit on mortgage interest was reduced between $1,000,000 and $750,000 and the interest on mortgages that aren’t utilized to upgrade the condition of your home will no longer be tax-deductible. For investors, there is nothing to change. You’ll be able to deduct property taxes as well as mortgage/home equity interest on rental income. The interest on home equity loans which is secured against your main home, and then used to purchase investment properties will be deductible from rental income.

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