by Susan Oberbillig, via LO Social Bot
On December 22, 2017, the Tax Cut and Jobs Act was signed into law. This rather large (1,097 pages) bill makes some important changes to income tax law and will affect almost every taxpayer in the U.S.
Some of the changes in the law may affect the ownership of real estate. A thorough discussion of the law is beyond the scope of this short article and would likely bore most readers to tears. Here are the most important aspects as they relate to real estate ownership. You should not construe any of what follows to be tax advice. Consult your properly licensed tax advisor for that.
- The standard deduction has changed to $24,000 from $13,000 for a married couple filing jointly, and to $12,000 for a single person, from $6,500 previously. If you do not have enough deductions to itemize (mortgage interest, property tax and state income tax among other items), you’ll choose the standard deduction as the greater amount
- For new purchases, you’ll be able to deduct interest on the first $750,000 of the mortgage balance. If you happen to get a $1 million mortgage, you’ll write off only the interest on $750,000
- You will no longer be able to deduct interest on a home equity line of credit (HELOC) or other second mortgages. Previously, you could deduct interest on up to $100,000 of equity debt
- You will be able to deduct property tax and state income tax up to a combined amount of $10,000. Previously, all property tax and state tax were deductible
- If you already have a loan above over $750,000 up to $1 million, you will be “grandfathered” in: you’ll be able to deduct the interest on your existing loan
If you are planning to buy at the lower end of the price scale, you may not pay enough interest and property tax to justify itemizing your deductions. If your filing status in “married filing jointly, you will only benefit if the total of mortgage interest, property tax and state income tax (if any) exceeds $24,000. If you are a single filer, you will begin to derive some tax benefit when interest, taxes and state income tax exceed $12,000.
The old law allowed you to sell your personal residence and exclude (not pay) $500,000 gain (married filing jointly) or $250,000 gain (single filer) provided that you occupied the home for at least two of the previous five years. There was a proposal to change the time frame to require five years of the previous eight, but that was removed from the final bill. There has been no change.
The bottom line: although the new tax law may change the way you can report certain deductible items when you file your income taxes, for most people, those changes will have very little, if any, effect on their taxes.
Before making any decisions where tax consequences may be involved, get in touch with your tax consultant. Seriously.
