After the passing of a new tax plan, many are still trying to figure out how it will affect them.
Recently, a new tax plan was signed into law, and many still are figuring out what the impact will be. As a homeowner or a future owner, what will this tax bill mean for you? Although you may or may not be thrilled with some of the new tax guidelines created by the law, the facts to know regarding the impact to homeownership and related costs are simpler than you may think.
Does the new Tax Cuts and Jobs Act impact my filing for 2017?
In most cases no, unless specifically noted by your CPA or tax professional. There are indeed a multitude of updates and changes to the tax code. However, you do not have to worry about this for the your 2017 tax return in most instances. As always consult a professional in this area if you are unsure.
Do I now have to live in my home for five of the last eight years to avoid the Capital Gains Tax when selling?
No. This was a major concern of mine as well as many of my customers. I spoke with Skyward Tax and Accounting Service owner Anthony Wongshue, and he advised me that the timeframe for this has not changed. The Senate passed bill initially aimed to change the time that an owner occupant must have lived in their home to be exempt from capital gains. The proposed change required that homeowners would live in their primary residence for five of the past eight years to be excluded from the capital gains tax per National Association of Realtors. Due in large part to lobbying by NAR, this was not voted into law. Homeowners need only to have lived in their home for two of the last five years to avoid capital gains tax.
This is a huge win for homeowners everywhere. NAR’s Profile of Buyers and Sellers found 54% of move-up buyers use profits from the sale of their previous home as a down payment on their new home. And more often, homeowners are opting to make a move to their next residence in fewer than five years. Thankfully, this nightmare scenario was avoided.
Can I still write off my mortgage interest?
Yes! But there are some pretty major changes here. Per NAR, the bill passed by the House would have limited the mortgage interest deduction at $500,000 and abolished the deduction for second or vacation homes. Again thankfully, that did not happen.
The current changes reduce the limit on deductible mortgage debt from $1 million to $750,000 for loans made after the Dec. 14, 2017. Although this isn’t good news for some, if you currently hold a loan of $1 million, it will be grandfathered in and not subject to the new regulations. You also can still deduct interest paid on your second home, with the aforementioned cap of $750,000 on loans taken after Dec. 24, 2017.
What about my HELOC?
Not all good news here, either. Per Julie Hoffmeyer, president of Bravo Unlimited Tax and Accounting services, you can no longer deduct the interest on your home equity line of credit. NAR does clarify this point on their website citing that if proceeds from the HELOC are used to “substantially improve” your home they can be deducted. Best bet as always is to check with your accountant or tax pro if you feel you have made such improvements and want this deduction.
What about property taxes?
Initial versions of the bill completely eradicated the deduction for property taxes, Yikes! Not a good thing in my opinion and not what ended up on the final version.
Your deduction for state and local property taxes (sometimes referred to as SALT) is now capped at $10,000 for both single and married filers. Many will not be happy with this change, and I can’t say I blame them. Luckily, we avoided the worst scenario of the deduction being removed entirely.
What else do I need to know?
The deduction for moving expenses has been removed unless you are a member of the Armed Forces. Estate tax exemptions have been doubled vastly, lowering the number of people who will ever have to pay them. And if you do not have insurance, you will no longer have to pay a penalty starting in 2019. The final bill is still controversial with some as the cap on property taxes will impact those in high tax areas or properties of higher value. For some the tax code changes as they relate to real estate will not be felt, although these households likely will be impacted in other ways. Seek professional advice if you are unclear on any of the changes and how they impact you personally.