Does buying a starter home still provide tax benefits?

Jack and Jill Jones are a married couple who wanted to follow the American Dream and buy their first home. They always wanted a place to call their own, and for years have heard about the tax benefits of home ownership from family and friends. After receiving a gift of $40,000 from family, and saving another $10,000, they have their $50,000 for a 20% down payment on a home (Jack and Jill clearly don’t live in California but bear with me).

When they go in to their yearly meeting with their CPA, the pending house purchase comes up. Jack goes over the amortization schedule showing they’ll pay roughly $9,500 in mortgage interest and $2,700 in property taxes in the next tax year to go along with their $5,000 in donations to their church and $3,000 they pay in state taxes. Jack then asks how much money they’ll be saving on their taxes due to the home purchase, and their CPA pauses before telling them they are not saving at all to Jack’s astonishment.

Prior to 2018, the Jones’ total itemized deductions of $20,200 would have been greater than the standard deduction of $12,700 by $7,500. Depending on their tax bracket that $7,500 would have saved them between $750 and $2,970 in federal taxes. With the passage of the Tax Cuts and Jobs Act of 2017, the standard deduction is now $24,000 for married filers, meaning the Jones’ will take the standard deduction, and therefore receive no tax benefit from their home purchase.

Does this mean that married couples should no longer purchase homes?  Of course not. Homes typically increase in value over time, when you buy you aren’t subject to yearly rent increases, equity is built in your home with each payment, and the satisfaction of owning your home can’t be understated. The tax benefits may just not be the factor they once were when making a home purchasing decision.