New Tax Cuts Significantly Impact Homeowners

The last week of the year is typically a quite time in the real estate world. This year, it’s been a bit more hectic. I’ve received numerous phone calls regarding the newly passed Tax Cuts and Jobs Act.

Numerous changes to the new tax code will affect homeowners, home buyers, and real estate investors. Unfortunately, the government’s rush to pass this legislation and the media’s hysteria to publish first rather than accurate information hasn’t help to clarify any of the specifics.

Here are some quick bullet points about the tax code that specifically affect homeowners. Dare I state the obvious- I am a real estate agent, not an accountant.  Please consult a tax professional.

1. Homeowners:

Reduces the limit on interest deduction for mortgages less than $750,000 (sorry McMansions!)

New $10,000 cap on itemized deduction for state and local taxes AND property taxes

2. Those selling a home:

The capital gains tax exclusion when selling was significantly changed in earlier versions but the final approved bill kept this exclusion unchanged (Everybody say, thank you National Association of REALTORS!).

3. Home buyers:

Interest remains deductible on second homes, but subject to the $750,000 limit

Repealed the moving expense deduction, except for members of the armed force

4. Real estate investors:

Interest on home equity lines of credit are no longer deductible for any purpose other than those expenses used to substantially improve the residence.

Preserved the 1031 like kind exchange deferred tax program, a big investor tool.

 

You may have heard the National Association of Realtors (NAR) came out strongly against the original tax legislation.  This stance softened considerably as both Congress and the Senate passed a final bill with many considerations given to NARs recommendations. A direct statement by NAR was the following: “While NAR remains concerned that the overall structure of the final bill diminishes the tax benefits of homeownership (specifically the increase in standard deductions) and will cause adverse impacts in some markets…the final legislation will benefit many.”

If you currently itemize your personal returns and believe your combined taxes for state and local taxes and property taxes will exceed $10,000 in 2018 you might consider prepaying some or all of those taxes in these last few days of 2017.

This would only make sense for those who plan to itemize their deductions in 2017 rather than take the current standard deduction.  For itemizing to make financial sense, the value of all your deductions need to exceed the standard deduction which of course is changing significantly in 2018.

Clear as mud?  Like I said, I suggest you contact your accountant.  I just sell homes…quickly…and for top dollar.