Under prior law, in addition to being allowed to deduct 100% of state and local income (or sales) taxes, homeowners could deduct 100% of their state and local personal property taxes. In other words, there was previously no limit on the amount of personal (nonbusiness) SALT deductions you could take, if you itemized. You also had the option of deducting personal state and local general sales taxes, instead of state and local income taxes (if you owed little or nothing for state and local income taxes).
Under the TCJA, for 2018 through 2025, itemized deductions for personal SALT amounts are limited to a combined total of only $10,000 ($5,000 if you use married filing separately status). The limitation applies to state and local 1) income (or sales) taxes, and 2) property taxes.
- I own a home in California, USA
- Property taxes are ~$9,000 per year
- In 2012, I got a 15 year fixed rate 2.5% interest mortgage
- Mortage payment is $1,900 per month.
- 8 years left on the mortgage.
- When filing taxes in April 2018, I was able to deduct > $40,000.
- When filing taxes now in 2019, I am only able to deduct $10,000.
My mortgage interest of 2.5% was the lowest in US history, so it was advantageous for me to have a mortgage, such that I could reinvest the leftover money in the stock market, which typically returns more than 2.5% annually. Now that TCJA cut the SALT deduction all the way to 2025, I am bleeding money to the interest payment. Should I pay off my entire mortgage today?