Shore to Shore Community Federal Credit Union Go to main content
VISA Rewards
Live Chat
Home > Membership > Member Alert: Tax Cuts and Job Act!

Member Alert: Tax Cuts and Job Act!


On December 20, 2017 Congress passed the House-Senate tax reform package, known as the Tax Cuts and Job Act (TCJA). The package cuts roughly $1.5 trillion over ten years. Due to these changes, we wanted to supply some information related to notable changes that could impact you, our members. Please note, this member alert should not be considered legal advice. If you have additional questions or concerns please consult with your attorney or tax accountant. Below you will find some answers to common questions:

Q. Have there been changes to the deduction of state and local income and property taxes?

A. Before the TCJA became law, the tax code permitted individuals who itemize their deductions to deduct the entirety of their state and local income taxes, sales tax, and property taxes from their federal income tax return. The TCJA makes changes to these deductions, removing the ability to deduct the entire amount by setting a cap for a maximum deduction of $10,000 combined for all state, local, and property taxes. This cap will take effect in tax year 2018 and remain in place until 2026.

Governor Rick Snyder and his administration announced January 8, 2018, the restoration of Michigan’s personal tax exemption, as well as, an eventual increase in the exemption from $4000 to $4500 by 2021.

The announcement comes after it was discovered the TCJA could have an impact on Michigan’s residents increasing what they pay in state taxes. The administration has stated they want to change the state tax code so residents can still use all the state tax exemptions.

The issue with the TCJA is the elimination of the $4,050 personal exemption. This is an issue because Michigan law permits taxpayers to claim a $4000 exemption for each exemption taken on their federal return. Without changes to the state law, a single person could see an increase of $170 in their state income taxes, and a married couple with two children would owe $680 more.

Q. How does the TCJA change the deduction of mortgage interest for first mortgages?

A. The legislation preserves the mortgage interest deduction. Specifically, for homeowners with existing mortgages (purchased before December 15, 2017), there will be no change in their deductible mortgage interest for loans up to $1 million. For purchases after December 15, 2017, the cap is lowered to $750,000. The new cap expires at the end of 2025.

Q. Is interest deductible on loans for a second home or vacation home?

A. For taxpayers with new mortgages on a first or second home, the mortgage interest deduction would be capped on new acquisition debt on a first or second home.

The new deduction of $750,000 is a combined limitation. This means interest payments on up to $750,000 of new acquisition debt are deductible and applicable to a principal dwelling and one other residence, such as a vacation or second home.

Q. What is the definition of acquisition debt?

A. Acquisition Debt is defined as indebtedness that is incurred in acquiring or constructing a residence. The term also includes indebtedness from refinancing of other acquisition indebtedness but only to the extent of the amount (and term) of the refinanced indebtedness.

Q. What about interest on income properties such as rental properties?

A. If a homeowner owns their primary residence and a rental/income property, the interest would be deductible on the primary residence and the income property. If a homeowner owns multiple income properties, under the TCJA and the previous tax code, interest on additional properties would not be deductible.

Q. Is interest on home equity loans and home equity lines of credit (HELOCs) deductible under the TCJA or was the deduction removed?

A. Unfortunately, the TCJA eliminates the deduction for interest paid on home equity and HELOC indebtedness for tax years 2018 through 2025. There is no grandfather provision for this disallowance, meaning the deduction has been temporarily eliminated for ALL home equity and HELOC indebtedness regardless of when the debt was incurred.

Q. What debt qualifies as “home equity indebtedness” for purposes of the TCJA?

A. The TCJA defines home equity indebtedness as any indebtedness (other than acquisition indebtedness defined above) secured by a qualified residence to the extent the aggregate amount of the debt does not exceed the fair market value of such qualified residence, reduced by the amount of acquisition indebtedness with respect to such residence.

This means the definition includes any and every kind of borrowing secured by a residence that is NOT used to acquire, build or substantially improve the residence.

Q. What about a loan that is refinanced?

A. Regarding refinancing, “acquisition indebtedness” is defined as indebtedness that is incurred in acquiring or constructing a residence as previously discussed. The term also includes indebtedness from the refinancing of other acquisition indebtedness but only to the extent of the amount (and term) of the refinanced indebtedness.

Example: If a taxpayer incurs $400,000 of acquisition indebtedness (purchases a new principal residence) and pays down the debt to $150,000, the taxpayer’s acquisition indebtedness with respect to the residence cannot thereafter be increased above $150,000 (except by indebtedness incurred to substantially improve the residence). For instance, if the taxpayer refinances the $150,000 remaining adding $20,000 to the $150,000 for a total loan of $170,000, for a new kitchen, interest on the total $170,000 would be deductible as the additional indebtedness was incurred to substantially improve the home.

« Return to "Member Alerts" Go to main navigation