It is safe to assume that the recent tax reform will affect many areas of our finances, including homeownership. The tax bill was large and quite comprehensive, making it difficult for the layperson to understand exactly how it will play out in our personal taxes. The National Association of Realtors has compiled some extensive information as it relates to homeowners and published it in this article.
To further simplify, I thought it beneficial to draw your attention to a few highlights of the article here.
•First, and quite fortunately, at the last minute, the Senate returned to the original verbiage regarding capital gains. As it was passed, the regulation was capped, excluding capital gains on the sale of a home and preserving the life-kind exchange in real estate. This means you will benefit financially in selling your home, without having to pay capital gains tax. There are a few limitations: you must own and have been living in the home for two of the last five years; and for single filers, the pay out will cap at $250,000; $500,000 for joint filers.
•Secondly, there are new restrictions on mortgage interest. The bill reduced the limits of deductible mortgage debt to $750,000 on new loans. This will include refinances and second homes, subject to the $750,000 limit. Current loans up to $1 million can be grandfathered in.
•Last, regarding tax deductions, the bill includes a new standard deduction, indexed for inflation, for up to $12,000 on a single return or $24,000 on joint returns. This does reduce the value of mortgage insurance and property tax deductions, eliminating these deductions as incentives for homeownership. It is estimated that only 5-8% of filers will now qualify for these deductions, erasing the tax differences between renting and owning a home for more than 90% of the population.
The last point will most effect how your homeownership appears on your personal tax returns. Troy Vigil, my trusted CPA explains, “Since the Standard Deduction was doubled to $24,000 for a Married Couple, most people will not be itemizing their deductions now. The State, Local and Property tax deduction is limited to $10,000 for those taxpayers who will still Itemize."
What is important to remember is that, regardless of where you stand in light of the tax reform, there are always options for owning a home. A home is more than numbers, more than simple real estate, and it is a home, not just a house, that I am after when I work with my buyers. Whether you are looking to list a property in 2018 or are still in search for your home, I am available and fully versed in these changes our country has put into effect.
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