How does the new tax law effect home ownership?
How Does the Tax Reform Impact Homeownership?
The new bill that was passed into law in December, The Tax Cuts and Jobs Act, will have significant changes to the deductions that homeowner's will be able to claim on their next income tax filing.
Most American's will be seeing a savings in taxes with the new standard deduction that has been doubled from $12,000 to $24,000 for joint returns and a limit of $12,000 for single filers. This will significantly reduce the number of people who itemize their deductions.
The NAR (National Association of Realtors) has summarized theses changes as as to how it effects real estate home ownership and real estate professionals. Here are some of those changes as it relates to Mortgage Interest Deductions and Local & State Taxes:
Mortgage Interest Deduction
-Deductible mortgage debt has been reduced from $1million to $750,000 for new loans taken out after 12/14/2017. Current loans are grandfathered in and are not subject to the new limits.
-Existing homeowner's may refinance existing mortgage debts up to $1million and and still deduct the interest, as long as the new loan does not exceed the current loan amount.
-The interest on home equity loans are not allowed to be deducted through 12/31/25. The interest on home equity loans and/or second mortgages can be deducted only if the proceeds are used to substantially improve the property.
State and Local Taxes
-The total for itemized deductions is limited at $10,000 for state and local property taxes and state income or sales tax. This limit is for both single and married filers.
-Any state and local income taxes for 2018 that were prepaid in 2017 are specifically precluded to be deducted.
For the complete summary from NAR please click here to view.
The most notable thing about these changes is that, by doubling the standard deduction, the value of mortgage interest and property deductions has been greatly reduced as tax incentives for home ownership. This means that, for about 90% of taxpayers, there will be no tax differential between renters and home owners.