There are significant changes to tax deductions that freelancers who financed their home or a secondary residence with a mortgage loan will see starting this coming tax season. The bottom line? On your 2018 tax return you will have a significantly lower limit for the deduction of mortgage and home equity loan interest, which may mean a larger tax bill.

Here’s why:

Under the Tax Cuts and Jobs Act (TCJA) or tax reform, which went into effect late last year, the mortgage interest deduction is reduced to the first $750,000 of debt related to acquiring, constructing or substantially improving your primary home or a designated secondary residence that a mortgage loan is secured by. Previously, if you itemized deductions on your return, you could deduct mortgage interest on the first $1 million of debt. In addition, for the next $100,000 in principal you could deduct any other mortgage debt, such as a home equity loan, used for other purposes (even those unrelated to actually improving your home).

Although tax reform reduces the mortgage interest deduction substantially, there is good news for those freelancers who had loans which began before December 15, 2017. In this case, you are effectively grandfathered into the previous law, meaning that you can still deduct interest on the first $1 million of the mortgage debt. If you decide to refinance the loan that you first contracted on or before December 15, 2017, you are still entitled to deduct up to $1 million in mortgage interest, but only on the remaining debt of the original loan.

An important side note regarding another type of residence-based loans—the home equity loan. Under tax reform, it doesn’t matter when your home equity loan began, the deduction for interest on such loans is eliminated if the loan is not used directly for acquiring, constructing or substantially improving your primary or designated secondary residence. If you are using the proceeds from a home equity loan for qualified purposes (such as building an addition to your home or putting on a new roof), then be sure to keep all receipts and documentation that can substantiate the deductions, should you choose to itemize them on your tax return.

As with many other previous “no-brainer” tax deductions, the TCJA throws taxpayers a bit of a curve. In the cases of mortgage loan interest and home equity loan interest deductions you should also consider whether it makes sense to itemize these expenses. This is because of the increase in the standard deduction under tax reform which may limit the tax-mitigating benefit of these kind of itemized deductions.

If you are unsure of how this particular change to the tax laws may impact your 2018 tax return, consider contacting a tax professional who can help you understand how it will impact your unique situation.

*Jonathan Medows is a New York City based CPA who specializes in taxes and business issues for freelancers and self-employed individuals across the country. He offers a free consultation to members of Freelancers Union and a monthly email newsletter covering tax, accounting and business issues to freelancers on his website, www.cpaforfreelancers.com which also features a new blog, how-to articles, and a comprehensive freelance tax guide.

*Jonathan is happy to provide an initial consultation to freelancers. To qualify for a free consultation you must be a member of the Freelancers Union and mention this article upon contacting him. Please note that this offer is not available Jan. 1 through April 18 and covers a general conversation about tax responsibilities of a freelancer and potential deductions. These meetings do not include review of self-prepared documents, review of self-prepared tax returns, or the review of the work of other preparers. The free meeting does not include the preparation or review of quantitative calculations of any sort. He is happy to provide such services but would need to charge an hourly rate for his time.