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Tax Reform And Home Ownership - Updates On Recent Tax Changes And Impact On Real Estate Ownership

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Tax Reform And Home Ownership - Updates On Recent Tax Changes And Impact On Real Estate Ownership



Three days before Christmas 2017, President Donald Trump signed the Tax Cuts and Jobs Act into law. Here is a brief roundup of the provisions in the new law that could directly impact your home or the housing market in your area.

MORTGAGE INTEREST DEDUCTION

Prior to the tax reform, homeowners could deduct the interest on their mortgage debt up to $1 million. The new law limits the interest deduction on mortgage debt, for mortgages taken out after December 14, 2017, up to $750,000 for new mortgages. Current homeowners are not impacted by this change. This may not be a factor where housing prices are relatively low and mortgages are below this limit. However, a mortgage this size is common in locations with high residential real estate costs. For example, the median home price in San Francisco is $1.5 million.Also, homeowners are no longer allowed to deduct the interest they pay on home-equity debt. It is important to note that the home equity line of credit (HELOC) deduction is NOT grandfathered. So, individuals with a HELOC will lose the deduction.

PROPERTY TAXES

The overhaul curbs how much homeowners can deduct for paying property taxes. State and local taxes (referred to collectively as SALT) can be deducted, but will no longer be unlimited as under previous tax law. The 2018 tax law will allow homeowners to deduct property taxes and either income or sales taxes with a combined limit on these deductions being limited to no more than $10,000. CAPITAL GAINS ON HOME SALESOne tax break that remains in place is a rule that lets homeowners shield some of the profits they make selling their home from capital-gains taxes.For individual, the break applies to up to $250,000 in profits on the sale of a principal residence, for married couples, it is up to $500,000.

INVESTMENT PROPERTY OWNERS

Investment property owners will continue to be able to defer capital gains taxes using 1031 tax-deferred exchanges, which have been in the tax code since 1921. No new restrictions on 1031 exchanges of real property were made in the new tax law. However, the new tax law repeals 1031 exchanges for all other types of property that are not real property. This means 1031 exchanges of personal property, collectibles, aircraft, franchise rights, rental cars, trucks, heavy equipment and machinery, etc., will no longer be permitted beginning in 2018. There were no changes made to the capital gain tax rates.


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