TCJA Changes to Real Estate

TCJA law changes made property tax in states with high income tax rates more or less non-deductible. The maximum tax benefit of owning a home is ≈$1K per month from the mortgage interest deduction.

TCJA law was enacted in 2017, but unless it is renewed, these changes will sunset by 2025. The TCJA impacted real estate as follows. The mortgage interest deductibility was reduced from $1M to $750K in outstanding loan balances for up to two homes (primary or secondary). The property taxes combined with state and local taxes can now only be deducted up to $10K, making property tax deductibility for high income tax rate states like CA or NY almost impossible. The home equity loan (or HELOC) is deductible only if expressly used for home improvement purposes.

State tax will end up taking most of the $10K in allowable deductions for individuals who make more than $140K in annual income (from solving for AGI below using 2019 taxes). Here is a quick back-of-the-envelope calculation for California state tax.

        CA Tax = Taxes from lower tax brackets
                         + (AGI – Exemption – Upper income limit for the next lower tax bracket)
                         x Marginal tax rate
        $10K    = 2546 + (AGI – 4537 – 57824) * 9.3%
        AGI       ≈ $140K

Given these changes, we may calculate the maximum tax benefit provided by a home mortgage. Please refer to our blog “Understanding Mortgage Interest” to better understand what portion of a mortgage payment is interest. At the maximum loan amount allowed for mortgage deduction under TCJA, assuming a 4.5% interest rate and 33% tax rate,

        Tax benefit = Tax rate x Monthly interest
                             = 33% x ($750K x 4.5%) / 12
                             = $928 per month

Hence, the maximum tax benefit from owning a house is the equivalent of getting a ≈$1K monthly check from the IRS. Our blog “Tax Implications of a Home Sale” provides an overview of taxes related to real estate transactions.

We specialize in tax-free retirement strategy and investments such as IUL, Annuity and LTC. Prefer a quick and complimentary consultation? Just email us at

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