The Tax Cuts and Jobs Act, otherwise known as the Tax Reform Bill, passed in December. Although accountants and politicians are still working through the details to determine how the new rules and regulations apply to their clients and constituents, the National Association of REALTORS® (NAR) has been on the forefront fighting and lobbying for the rights of homeowners and working hard to make sure home ownership in this country is not adversely-affected.
NAR put together a summary of what the final bill means for property owners. You can read the entire text at: https://www.nar.realtor/tax-reform/the-tax-cuts-and-jobs-act-what-it-means-for-homeowners-and-real-estate-professionals but below is a summary of the provisions, most of which went into effect 12/31/17, and how those apply to real estate:
Home Mortgage Interest Deduction – The final bill retained the mortgage interest deduction on mortgages, but limited the mortgage debt to $750,000 for new loans (previously-secured loans up to $1 million are grandfathered in). The mortgage interest deduction for second homes follows the same rules.
Home Equity Debt Interest and Second Mortgages– The bill repealed the deduction for interest on home equity debt but not if the loan was used to substantially improve the residence.
Property Tax Limits – For those who itemize their taxes, a deduction of up to $10,000 for the total of state and local property taxes and income or sales tax will be allowed.
Capital Gains on Home Sale – Although this was looked at closely, the final bill kept the current law in place, allowing for no capital gains tax on primary residence with gains of $250,000 for singles and $500,000 for married filing jointly so long as the homeowners lived in the home two of the last five years before selling.
1031 Exchanges – For those people with investment property, the bill retains the 1031 Exchange rules for exchanging real estate to avoid capital gains tax.
Although it may not seem like much will change from a property-owner perspective, because the standard deduction will have doubled, it makes itemization less valuable and therefore, home ownership less valuable as well. In fact, homeowners who itemized their deductions in the past may find that it is more beneficial (both from a financial and work point of view) to take the standard deduction.
There are some additional changes to items such as moving expenses and the historic tax credit. If these apply to you, please read the information in the link above, talk to your accountant, or let me know if you have questions.
Some elements of the bill may still be fine-tuned by lawmakers and additional information is forthcoming. I also advise you to talk with your accountant to make sure you have the facts on how these changes affect your real estate investment. Questions? Please give me a call, text, or email: 206.730.0962 or firstname.lastname@example.org.