Homeowners and the Newly Passed Tax Bill
Homeowners Are Looking For Answers
Homeowners around the country are looking for answers and wanting to know how the new GOP tax bill, approved last month, is going to affect their home property values and tax rates.
Considering that many Senators, both Democratic and Republican, have not been able to read the bill in its entirety, it’s understandable that the average homeowner may be having a struggle trying to get the gist of it as well.
We follow statistics for Wilmington real estate and all of the surrounding areas very closly and will be monitoring to look for factual evidence of any changes in property values and marketability for homes for sale in Wilmington.
If you would like to follow the real estate statistics in your area click HERE.
Here are 8 key elements of the GOP Tax Plan that could affect you in 2018:
The mortgage interest tax deduction has been sold as to Americans as the way to make home ownership a more affordable option and allow people who have been unable to buy homes in the past economy. The deduction cuts federal income tax for qualifying homeowners, reducing their taxable income by the amount of mortgage interest they pay. The new rate on interest for people buying a home after Dec. 15, 2017 is capped at $750,000 of debt as opposed to the previous rate cap of $1 million.
Mortgage interest. If you married filing separately, you may deduct the interest you pay on mortgage debt up to $500,000 on your primary home and a second home. This cap makes it much more appealing (depending on circumstance) for married couples to file jointly, as their deduction on the interest they pay on mortgage debt increases to $1 million. There is no change in the mortgage interest rates for homes bought before Dec. 15, 2017. If you bought your home on or after that date, you may deduct the interest on mortgage debt up to $750,000 and $375,000 if you are married filing separately.
Property tax deduction. The current tax law allows qualifying taxpayers to reduce their taxable income by the total amount of property taxes they have to pay. In the new compromise bill, the deduction is limited to a total of $10,000 for the cost of property taxes, as well as state and local income taxes.
Property taxes. Under the new bill you will be able to continue to deduct any property taxes that you normally pay on any of the real estate you own. For those married couple filing jointly the deduction cap is $10,000 and $5,000 if you are married and filing separately for a combination of property taxes and either state and local income taxes or sales taxes.
Home equity deduction. In addition to the mortgage interest deduction, the old tax law added a deduction for interest paid on home equity debt for reasons other than to buy, build, or improve your home. As an example, if you borrowed on a home equity line of credit to pay your college tuition, the interest you had to pay was tax-deductible. The GOP Tax Plan eliminates that deduction.
Home equity debt. A homeowner can deduct interest on up to $100,000 of their home equity debt and up to $50,000 if they are married filing separately. The new plan eliminates the deduction for interest on home equity debt.
Capital gain exclusion. Capital gain is the difference between the price you paid for your home and the price you sold it for. Capital gain is treated just like taxable income. In the old tax plan, if you owned your home long enough, you were able to to exclude up to $500,000 of your capital gain income from federal income tax. The House and Senate originally voted to remove the exclusion, but struck that language from the final bill allowing homeowners to keep the deduction for capital gains. To qualify for the capital gains exclusion, you must have owned your home, and lived in it as your primary residence, at least two of the five years before the date of sale and not have used the exclusion in the two years before the sale of your home.
Mortgage interest deduction for second homes. Under current law, you may deduct interest on mortgage debt on your primary home and a second home. The compromise bill kept this part of the tax law in place, although it reduced the amount of eligible mortgage debt, as seen in item No. 1 above.
Itemizing Deductions on Your Home
Tax Policy Center, a non-partisan independent analysis group, estimates that with the implementation of the new compromise tax plan, the number of people choosing to itemize their deductions will fall from about 49 million to 10 million.
The old standard deduction was $12,500 whereas the new bill puts the standard deduction rate at $24,000 putting some below the new standard rate.
Whether you end up paying less tax or more tax depends on a wide range of factors beyond the homeownership-related deductions and exclusions discussed here. Every taxpayer is different.
Reach Out To Your Accountant or Tax Attorney
Althogh we follow tax issues that affect real estate in general, if you have specific questions we strongly recomend speaking to your accountant or other legal entity. Or focus is selling Wilmington real estate and making sure our customers are in the best position for every real estate transaction. We in no way are attempting to provide tax advice, but look to provide some insight on the potential tax reprecussions for our customers.
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