Mortgage Interest and Property Taxes: Maximizing Tax Deductions and Navigating the SALT Deduction Limitation

Owning a home is a significant financial milestone. One of the often-overlooked benefits is the potential tax advantages. Mortgage interest and property taxes can significantly reduce tax liability for certain households – particularly those giving significant amounts to charity, paying significant mortgage interest and/or experiencing significant medical bills.

Understanding how these deductions work can be of material importance, especially as we await Washington’s determination surrounding the future of TCJA. Ponte Vedra, Nocatee, Atlantic Beach, San Marco, Ortega and beyond are full of beautiful homes demanding significant price tags. These relevant tax laws impact the ongoing net cost of ownership.

This post breaks down some key facts and figures you need to know to better navigate your financial and tax planning moves this year.

How Mortgage Interest and Property Taxes Lower Your Tax Bill

Before the Tax Cuts and Jobs Act of 2017, homeowners could deduct the full amount of mortgage interest paid on their primary residence (and a second home in some cases) and all their property taxes from their federal taxable income. This “itemized deduction” reduced the amount of income subject to federal income tax, leading to potentially significant tax savings.

  • Mortgage Interest Deduction: This deduction applies to the interest portion of your mortgage payments. In the early years of a mortgage, a larger portion of your payment goes toward interest, making this deduction particularly valuable.
  • Property Tax Deduction: Homeowners can deduct the property taxes they pay on their primary residence. In areas with high property values, like Ponte Vedra, Nocatee, San Marco, Jacksonville Beach and Atlantic Beach, this deduction could be substantial.

The Impact of the SALT Deduction Limit

The Tax Cuts and Jobs Act introduced a significant change: a $10,000 limit on the amount of state and local taxes (SALT) that can be deducted. This cap includes both property taxes and state income taxes.

While the TCJA giveth the tax payer generally larger tax brackets and lower tax rates…the TCJA taketh unlimited deductions for Sales And Local Taxes, as well as an unlimited mortgage interest deduction.

Fortunately, the net effect these deduction limits have for Florida residents is considerably less than the effect for residents of states with state income taxes and higher property taxes: like New Jersey, New York and Pennsylvania.

Nonetheless, this change can still impact Florida residents with high property tax bills and mortgages beyond $750,000 as well as those who weathered considerable sales tax during the year – think luxury car purchases.

How This Affects Jacksonville Homeowners

Affluent communities in Greater Jacksonville are known for their desirable locations and beautiful homes, which often come with higher price tags and, consequently, higher property taxes. Ponte Vedra, Nocatee, San Marco, Jacksonville Beach, Atlantic Beach, Deerwood and St. Augustine all contain pockets of these high-end homes.

For these homeowners, annual property taxes alone can approach, or even exceed, the $10,000 SALT deduction limit, rendering their ‘sales taxes paid’ amount a useless factor for income-tax’ sake.

Example: The SALT Deduction Squeeze

Imagine a family in Ponte Vedra with a $1,500,000 home and a $12,000 annual property tax bill plus $7,000 in sales tax paid associated with a Jeep Grand Wagoneer, or similar purchase during the year. Outside of TCJA, they could deduct the full $19,000. Now, they’re limited to a $10,000 deduction, meaning $9,000 is no longer deductible for federal income tax purposes.

This difference may increase their net tax bill. But of course, given how complex tax calculations are, it is also possible their tax bill decreased in other regions of the tax return by greater amounts than any savings lost in this section alone.

Just like with any financial planning and advice, taxes are extremely unique to each person and situation.

Why This Matters

This limitation disproportionately impacts homeowners in high-tax areas. It effectively increases the cost of homeownership, making it potentially more expensive to live in communities like Ponte Vedra, Nocatee, Jacksonville Beach and Atlantic Beach.

Families who purchased homes in 2016 and 2017, perhaps somewhat relying on the previous tax deduction rules, may now find themselves with a higher tax burden than anticipated. This can put a strain on household budgets and impact long-term financial planning.

Navigating the Changes

While the SALT deduction limitation is a reality, there are strategies homeowners can explore to potentially mitigate its impact. These include:

  • Analyzing Itemized vs. Standard Deduction: Determine whether itemizing, even with the SALT cap, is more advantageous than taking the standard deduction.
  • Tax-Efficient Investing: Focus on investment strategies that minimize your tax liability.
  • Mortgage Review: While not directly addressing the SALT issue, it’s always wise to periodically review your mortgage terms and explore options like refinancing if it makes financial sense.
  • Property Tax Assessment Appeals: If you believe your property tax assessment is too high, you may be able to appeal it.

Working with a Financial Advisor to Improve Tax Outcomes

Navigating the complexities of tax law is an ongoing effort that weaves into all other areas of planning. Forward-looking tax planning is a pillar of what we do for our clients.

Maybe, for your particular situation, a gift to your favorite church or charity is more impactful in one year than another. Maybe gifting stock straight from your portfolio is better than cash.

When you have someone in your corner who works alongside your accountant, keeping a watchful eye on changing tax law, these seemingly small adjustments can amount to material differences over a lifetime.

We’ve never understood the propensity of many Wall Street media “stars” to make prognostications regarding the stock market’s future. Mostly, their predictions are for “lower than average” returns for the next decade. This year has been no exception, and these stories abound. Low expectations seem to be in vogue, even as the country (and the world in general) is experiencing an upturn in attitude and expectations.

We wonder why the naysayers feel so confident, when the future is predicated on unpredictable future events. First, many of the media “talking heads” are self-appointed “experts,” not willing to own up to track records for their prior prognosticating having been flimsy and inconsistent. There is nothing so powerful among the media crowd than the knowledge that they will not be held accountable for being wrong.

One of my favorite pieces of wisdom is simple, but too often overlooked– always consider the source. What are Wall Street purveyors of “wisdom” selling? All are selling something, whether more media time and access for themselves, expensive newsletters, precious metals, books, or whatever. How trusting could anyone be after discovering the actual motive behind the prediction?

Yet another talking point for the “anointed ones” regards pure market statistics. Classic among them is the Market Correction, which refers to a drop of at least 10% in the S&P500 Index from its most recent peak. Corrections occur on average once per year. That does not mean there will be a Market Correction every year, or even soon. That is a misuse of statistics.

Similarly, many look at our market gains of the prior two+ years, citing the past 834 calendar days, during which the S&P500 Index gained over 71%, insinuating that this can’t go further. That is also a false conclusion, as the average Bull Market runs over 1,000 days, with total gains of more than 114%. That sure doesn’t sound like a restrained Bull Market.

No one knows what the market will do this year, no matter how confident he or she appears. I am certainly no exception. That said, our new Administration has a track record of success. To me, that counts. Good, bad, or indifferent, recent changes do nothing to sour my optimism. Were I to be asked for a market forecast, I would simply tell the questioner that over a long time period, average annual market returns are near 11%. We have to say, because it is so true, that past performance is no guarantee of future success. With a record like that, I’ll stick with a diversified fundamental investing strategy, including a lengthy time horizon. It works.

Let’s all relax and enjoy the newfound spirit of optimism. We will continue to report the actual results weekly.

Most everyone knows enough about credit scores (FICO) and their role in your personal finances. The Big 3 credit reporting agencies controlling your data and scores include Equifax, Experian, and Transunion. But how many of you know about their little brother, Innovis? Protecting yourself requires being as thorough as possible, partly by paying attention to all four agencies.

When you are setting out to increase your own security, begin by locating your own personal credit score. A good place to start is myfico.com, which is the standard bearer for credit scores. Yours can be obtained for no charge. Also, check out freecreditcheck.com for more information, as well as your own personal credit report.

Freezing your credit is an excellent safety precaution, in a world where there are bad guys lurking in every corner of the Internet. Freezing your credit assures you that no agency can make any changes or get your scores unless and until you authorize access at one or more of the credit reporting agencies.

We all hear the scary commercials on TV. You know the ones, where the bad guy steals your home by filing a simple piece of paper. The Register of Deeds in your county is required to file the notarized paper, once received in good condition, fraudulent or not. Or, the criminal puts mortgages and liens on your home, taking the money, and leaving you to cover the debts, even if it requires sale of the property.

While the commercials are designed to take some of your hard-earned cash, there are steps you can take that do not drain your wallet. The first and foremost action to be taken is to freeze your credit at every reporting agency. Fortunately, they make it easy.

Remember, they have ALL of your personal data, and any one of them may cause you trouble if they do not have a freeze on your data. That’s why many Americans freeze their own credit at the Big 3 agencies. This can be done online or by phone (at no cost to you). Once frozen, potential creditors may still gain access to your information, but they will first need to obtain your permission.

When you are taking these actions, remember to contact Innovis as well. They control the same data, and need to follow the same procedures.

Applying for a new loan or credit card requires a credit report, and the potential loan provider will need to obtain your score and credit history from one of the agencies. Find out which one the company prefers, and you can contact that agency to place a “thaw” on your data for a specific time. Once the process is completed, the freeze goes back into effect.

Remember that every person is treated individually by the agencies, so married people must perform the actions twice. We recently upgraded our status, including at Innovis, and the process was easy and free. Take advantage of that.

America is experiencing a cathartic moment in time. Common Sense, which we Baby Boomers grew up more or less taking for granted, has been eroding at an alarming pace for a few decades. Call it Political Correctness, CRT (Critical Race Theory), Equity, DEI (Diversity, Equity, and Inclusion), Affirmative Action, or ESG (Environmental, Social, and Governance), the powerful movement has infected American sensibilities, negatively affecting our investments. Lately, their popularity appears to be coming to a halt.

Socially Conscious investing has been popular for decades, as many mutual funds and ETFs (Exchange-Traded Funds) were developed to offer investors the ability to avoid holdings in the tobacco industry, defense weapons production, fossil fuels, and any number of individually distasteful arenas. Among the most recent were investments tailored to DEI proponents.

One after another, America’s publicly traded corporations are terminating their DEI programs. Until recently, public pressure to adopt these programs was difficult to ignore. Remember when Chief Justice John Roberts rendered his opinion that perhaps the best way to end discrimination was to “stop discriminating?” Doing the right thing does not need to be tailored to social fads.

Recent investment performance problems have raised eyebrows among investors, Wall Street practitioners, and government officials. Fiduciary Responsibility, which compels managers to do the best thing for shareholders, was violated, all in the name of Political Correctness (or whichever trendy term applies). Investors noticed, scrapped their underperforming assets, and took their investment cash elsewhere.

Just this week, American Airlines lost a court case alleging that the company’s 401(k) Plan underperformed due to an emphasis on ESG investing, resulting in reduced returns for their employees.

Lowering standards to accommodate feel-good policy acronyms leads to reduced performance. Demand for improved performance has induced corrective action, such as elimination of ESG and DEI, which are suddenly being dropped like proverbial hot potatoes.

Recently, Vivek Ramaswamy noted that “American culture has venerated mediocrity over excellence for way too long.” That did not sit well with all Americans, but evidence is all around us. As we re-enter a period of America First attitudes, individuals and corporations are seeking performance. Stock and bond markets will hopefully react positively to recent changes, and we all win.

As investment managers, we are constantly seeking improved performance. Our economic futures will all be enhanced as the country returns to the pursuit of excellence through common sense competition.

It’s no secret that the past four years have not been the most financially rewarding for a majority of Americans. Since resilience is a hallmark of our population, we are expecting a 2025 resurgence of optimism, with improving personal finances.

Investors have enjoyed a strong run-up in the stock market, likely based in optimism before the election. Now, stock valuations are pricey, interest rates are stubbornly high, and inflation remains a problem. Trump’s energy policies are designed to bring prices down dramatically. That alone cannot quench the inflationary fire, but it should serve as a launching pad for businesses and industries to improve their cost structures.

Other factors may also be contributing to reduced escalation in the cost of living. Commodity prices remain under pressure to go lower, and are not currently contributing much to the inflationary cycle. Labor rates have been rising, but at a much slower pace in the past year. Productivity has been rising at a solid pace, partially offsetting the effects of increasing labor rates. Taxes are now extremely unlikely to be raised on businesses and consumers in 2025. All these factors bode well for a continued lessening of inflationary prices.

COLAs (Cost of Living Adjustments) for Social Security Benefits are lower than we’ve experienced these past few years. Again, this will reduce excess demands on the economy from recent elevated government spending after COVID-19. Unfortunately, the lower COLA will be a drag on personal saving.

Economist Milton Friedman taught all of us (well, at least those who would listen) that inflation is, and will always be, a monetary phenomenon. Too much money chasing too few goods and services results in rising prices. Excessive government spending, without corresponding increases in output, is one of the primary driving forces of inflation. If the new Administration is successful in reducing government outlays, we will all benefit from stabilizing prices.

On an overall basis, the economy looks poised to enter a time of prosperity. Each of us needs to determine how we can best benefit from coming good times. For many, a good first step would be to reduce, and then eradicate, credit card debt. Several approaches to debt reduction are popularized in the media, and whichever method you choose, aim to eliminate these high-interest problems.

People with 401(k) accounts should increase their contributions as much as possible. We are fans of the strategy whereby any salary increases are directed into 401(k) accounts. Out of sight, out of mind.

IRA owners should max out 2024 deposits, if possible, before April 15, followed by making 2025 deposits. Personal savings have never been more important for a comfortable retirement.

Finally, consider working with a qualified, independent, financial advisor.

Christmas is upon us, and 2025 is only a few days away, so I am looking backward and forward for any positive personal financial possibilities that can help us spread some Holiday cheer. I recently found one. Actually, Adam found it and alerted me, so I am passing it along to our audience.

This one affects only a small handful of people, but those who are affected will appreciate the upshot. Personally, I enjoy news that can save money and taxes for anyone qualified to take advantage of another dysfunctional aspect of the U.S. Government. So, what have they done now? Or, perhaps a better question would be, What have they NOT done now?

Back in 2019, Congress passed the Setting Every Community Up for Retirement Act (SECURE 1.0), which was designed to improve the ability of Americans to provide for their own retirement incomes. The original law was filled with unclear and confusing provisions, especially pertaining to Required Minimum Distribution (RMDs) from Inherited IRAs. Most inheritors of IRAs lost the ability to “stretch” RMDs over their own lifetimes.

These changes only applied to IRAs whose original owners died after December 31, 2019. Due to the level of confusion this caused among beneficiaries and their advisors, RMDs were waived until Congress amended uncertain provisions.

Passed in 2022, SECURE 2.0 attempted to clarify remaining questions. However, SECURE 2.0 also failed to deliver complete, clear, and understandable results, and RMDs were again waived, this time until 2025. By then, Congress was to have laid down the law in a concise manner. And once again, the government failed to meet its self-imposed deadline.

SECURE 3.0 is in the works, and expected to pass in 2025 as the “final” product of lawmakers and the IRS. Just days ago, RMDs for affected Inherited Account owners were again waived, this time for 2025, and are now set to resume on January 1, 2026. Whether Congress gets it right this time remains to be determined.

Often, people who inherit IRAs would prefer not taking distributions, resulting in additional time for accounts to grow further in the tax-deferred IRA environment. Merry Christmas to these people, including a few of our clients. They have been fortunate enough to delay withdrawals for multiple years, improving their own retirement situations.

Happy New Year to all, whether or not you benefit from the failures of our elected officials to meet deadlines.

Listen carefully, and you can almost hear the national (and international) sigh of relief as 2024 winds down to an end, leaving in its wake a pile of economic hardship and damage. Strangely, economic reports and statistics flowing constantly from our bureaucrats and media sycophants seem to want us all to believe that our economy is excellent, our lives tidy and unharried, and the future bright. As Alfred E. Neuman repeatedly asked in Mad Magazine, “What, me worry?”

In the 1980s, we were introduced by Ronald Reagan to the question that changed everything. “Are you better off now than you were four years ago?” That question is getting a second wind, due to the vast majority of Americans who can only answer it in the negative.

How did you fare during the past four years? Many Americans are better off financially, as our stock market has been on fire, with records being set frequently. Investors with significant account balances have added wealth and security to their lives. Unfortunately, these people represent a relatively small portion of American families.

Regardless of where you stand financially today, it is time to approach the future with an eye toward making your own situation better in 2025. Almost everyone can adopt a positive attitude and make some changes. As much as I detest the notion of New Year’s Resolutions, this may be the time for one.

For instance, participants in company-sponsored retirement plans, such as 401(k) and 403(b) Plans, should make an effort to increase contributions and learn more about asset diversification. IRA savers should attempt to max out contributions for 2024 and 2025. Remember that you have until April 15, 2025, to add to your 2024 IRA.

Due to rampant losses and inflation in the insurance industry, your policy renewals may be coming in with significant double-digit increases. You are not helpless against these jolts to your cash flow. Take some time to do a complete analysis of your insurances, and shop around for better deals. There is no better and quicker way to pad your income than by reducing the cost for necessities. We recommend a discussion with a local independent insurance agent.

Each of us can do a better job with our 2025 finances, but it requires some reflection and analysis of our recent situations. The Holidays are a perfect time to figure out where we have been hurt by the economy of past years, and then develop better alternatives.

Getting some professional help may be timely. We recommend a free consultation with a Certified Financial Planner®.

Every year since I can remember, I have prepared a Christmas Wish List for Congress, and every year the theme seems to be the same. Last year, I wrote (modified slightly): Once again, I am driven to perform an annual exercise in futility by itemizing my Wish List for this (the outgoing 118th) Congress. As always, there are many unresolved tax questions, unfinished “tweaks” to the Tax Code, and inconsistencies within the rules for Qualified Retirement Accounts. When contrasted with the few planned workdays left in the December Congressional schedule, it portends yet another “disaster of the undone.” As the remaining time for Congressional action wanes, it is largely discouraging to look back at the progress (or lack of same) made by the outgoing Congress toward last year’s list, starting with: Wish Number 1. Make the Trump Tax Cuts of 2018 permanent. In the Tax Cuts and Jobs Act of 2017 (TCJA), which took effect on January 1, 2018, both individual and corporate tax rates were dramatically lowered. Almost every taxpayer, every consumer, and scores of employees of large corporations benefitted greatly from more cash in their wallets. With the (re)election of Donald J. Trump, this is a near certainty. However, the usual group of elected lightweights in Congress are already explaining why this is not their #1 priority. The more things change, the more they stay the same, or so it seems. Wish Number 2. Inflation index tax items, including the SALT (State And Local Taxes) deduction limit, currently stuck at $10,000 per taxpayer (single or joint filers constitute one taxpayer). Prior to TCJA, taxpayers who itemize deductions could include 100% of their SALT expenses. Restrictions imposed by the 2018 Code  changes restricted that amount to the current $10,000. Now, it is time to at least acknowledge the simple premise that a couple filing jointly should receive twice the benefit of the deduction, updated annually for inflation. Wish Number 3. Have some mercy on tax preparers, tax planners, and taxpayers by giving us next year’s rules earlier this year. This is especially important when planning items such as Roth IRA Conversions, where there is no longer a chance to correct unintended errors after December 31. Congress is so derelict in wrapping up loose ends (especially in an election year) that Tax Code changes can actually bleed over to the next year, when it’s too late. I could go on, but it is the Holiday season. Van Wie Financial is fee-only. For a reason.

December is here, and if you are like most people, you are not quite sure how it snuck up on us so quickly. With Thanksgiving having occurred so late in November, remaining time is unusually short for planning and completing transactions prior to the New Year. Financially, we should all be tidying up what we can by planning for what we should do in the remaining days of 2024. We have compiled a short checklist of items that affect many Americans.

Lessening our 2024 tax bills (due next April) should be a top priority for every taxpayer. While 2024 IRA deposits can be made up to April 15, 2025, anyone planning a first-time 2024 Roth IRA contribution should consider opening that account in December, even if only with a small contribution. The reason for this is the 5-year period required for all Roth funds to become penalty-free. One full year is credited to the five-year history regardless of how many days the account was actually funded. The balance of the 2024 deposit can be made in early 2025.

People ages 50 and up are allowed to make additional (“catch-up”) IRA contributions each year, up to the $1,000 statutory (fixed) limit. While we were disappointed that this number did not increase for next year, it is nonetheless available to help our tax bills for 2024. (Catch-up contributions are meant to make up for lost time for late-starting savers, and apply to anyone of age.

Participants in 401(k)-type Plans make deposits through salary reduction deferrals from payroll, which can only be applied to the year of the actual deferral. Some employees may be able to increase their deferrals before the end of December to decrease taxable income, but hurry, as it is a busy time for HR Departments across the country. The maximum 2024 deferral is $23,000, and rises to $23,500 for 2025. In both cases, participants ages 50 and over by year-end may add up to $7,500 annually for “catch-up” contributions.

We should also note that participants ages 60, 61, 62, and 63 at year-end may increase their Retirement Plan “catch-up” contributions to a maximum of $11,250 for each of these years. While this represents a short period of working time, the extra contributions can only help, once retirement becomes a reality. Again, the purpose of these higher limits is to help late starters increase retirement income.

Medical Expenses are deductible, but only in excess of 7.5% of the taxpayer’s Adjusted Gross Income (AGI, usually located on line 11 of your Form 1040 Tax Return). Managing the timing of payment of medical expenses can reduce tax bills for itemizers. Pay this year if you can itemize deductions in 2024, or delay payment until 2025 if you will have a better opportunity then.

Tax Planning is truly a year-round activity. The more you know, the less income tax you may have to pay. What a great Christmas gift to yourself.

Van Wie Financial is fee-only. For a reason.

Our recent Blogs have outlined financial changes coming from government-controlled entities (including the U.S. Tax Code, Social Security, and Medicare, especially as Cost-of-Living Adjustments (COLAs) are unequally applied to each. This past week brought further data releases, in the form of Medicare premium increases for both the Base Cost and IRMAA add-ons. IRMAA stands for Income-Related Monthly Adjustment Amounts, which are applied to many Medicare enrollees, based on their income.

Last week, we made a simple observation. Every year, the government demands a larger portion of our purchasing power.

This week, we are able to offer further evidence to support our viewpoint, using just-released adjustments (increases) to Medicare premiums. Instead of matching the 2.5% Social Security COLA, Medicare premiums are increasing about 5.9%, and deductibles paid out-of-pocket before benefits kick in are rising nearly 7.1%. Both erode our purchasing power on a monthly basis.

On the Income side of our primary Social Program, Social Security, we explained that the COLA for Social Security monthly benefit payments would be 2.5% for 2025. On the Expense side, Medicare Part B and Part D premiums for enrollees are usually extracted by automatic deduction from Social Security monthly benefits. For most people, these costs remain hidden, as relatively few Americans regularly visit the Social Security website.

Doing some simple math in our personal income/expense ledgers, we find that net benefits to our nation’s senior citizens have once again been diminished (with the difference going directly to Uncle Sam). So predictable, and so egregious.

COLAs have long been unfairly applied, in our opinion. However, among the most egregious mandates in this arena are IRMAA surcharges for Medicare Part D Prescription Drug Plans. Social Security recipients who do not even subscribe to Part D, but have incomes above government-prescribed limits, are assessed Part D IRMAA monthly surcharges. These taxpayers receive zero benefits from the Plan. In whose world does this sound fair and reasonable?

Once again, America’s “seasoned citizens” will experience a setback in their lifestyles. When costs to taxpayers are increased through clandestine transactions, such as IRMAA surcharges, our lifestyles quietly continue to ebb.

This message is hardly in the spirit of the Season, but our intent is always to provide current and accurate information, whether positive or negative.

Happy Thanksgiving to all.

Van Wie Financial is fee-only. For a reason.