The Tax Cuts and Jobs Act – What does it mean for homeowners?
The Tax Cuts and Jobs Act, signed into action on Dec 22, 2017 is the largest tax overhaul since 1986 and is expected to lower income tax bills, and shake up the deductions we’ve been used to for 3 decades. There will be a large impact on many Americans, the calculation of their gross taxable income, exemptions they can take and deductions they qualify for. So let’s talk about how the final version will affect American homeowners, potential buyers, and sellers.
These are not the only changes in the bill. For more changes compared to previous tax legislation, click here.
5 Major Tax Changes Affecting Current and Prospective Homeowners
1. Tax Brackets Changed
The new law provides generally lower tax rates for all individual tax filers. While this does not mean that every American will pay lower taxes under these changes, many will.
See tax bracket changes here.
2. Standard Deduction Raised
The new law increases the standard deduction up to $12,000 for single filers and $24,000 for joint filers. With a larger standard deduction and a reduction of mortgage interest and other tax deductions (see below), this change may cause the majority of taxpayers to take the standard deduction rather than itemize their taxes.
3. Mortgage Interest Deductions Lowered
The maximum amount of mortgage debt you can deduct interest on your taxes has changed from $1 million to now $750,000. Any loans taken out after Dec 14, 2017, are subject to this new rule, though any existing mortgages have been grandfathered in with the old limit of up to $1 million. Mortgage interest on second homes can also be deducted, but is subject to the $750,000 limit, as long as the money borrowed is used to buy, build, or improve that home.
Homeowners can refinance their mortgage debts that existed before Dec 14, 2017 up to $1 million and still deduct the interest as long as the new loan amount is not more than the original loan amount being refinanced.
4. State and Local Property Taxes Capped
The new law bundles all state and local taxes together and limits the deduction, in total, to $10,000 for both individuals and married couples. For example: property tax, income tax, sales tax, etc.
For some homeowners in high-tax areas $10,000 does not come close to covering their combined property and income tax bills. See where your state falls on the state and local taxes scale, here.
5. Other Changes’ Effect on Housing
Moving expenses:The law eliminates the deduction for everyone except for members of the military.
Historic Tax Credit:The Housing Tax Credit has been used to fund renovations in more than 40,000 historic structures since 1981. The law still provides a 20% credit when the certified historic property is placed into service but the new law spreads the deduction over five years.
Low-Income Housing Tax Credit:The bill retains the 4% Low-Income Housing Tax Credit, which funds about 1/3 of all affordable housing construction.
So What Does It All Mean?
There have been several changes which will affect the housing industry. The National Association of Realtors predicts that reduced tax benefits associated with buying a home will cause housing prices to lower. This could be good news for first-time buyers but might throw a wrench for those who currently own property. Consumers will still need to realize the other wonderful pros of homeownership; such as building wealth through equity and appreciation in value over time.
Special Info for Realtors
There will be several changes to the way real estate agents and brokers earn income and do business. Read more in the tax reform breakdown from the National Association for Realtors (NAR). I hope this information is helpful!
- Major Provisions Affecting Commercial Real Estate
- Major Provisions Affecting Real Estate Professionals
With all of this new information, you probably have some questions! Please don’t hesitate to contact us with your mortgage related questions. Please contact your CPA with questions about the upcoming tax changes, and how they will affect your finances. And if you need a referral to a reputable CPA, please let us know!Brackets, Deductions, homebuyers, Homeowners, Income, Interest, JObs, Mortgage, Tax Cuts, taxes