homeowner’s tax reform quick guide
This homeowner’s tax reform quick guide will focus on the biggest real estate oriented tax polices that were recently enacted. The new tax law is known as the Tax Cuts and Jobs Act. It may change how buyers see homeownership incentives.
Here is a brief rundown of some of the most noteworthy real estate-related tax policies and how they may affect homeowners.
New SALT Deduction Limit
SALT stands for “state and local taxes”. In the past, taxpayers could deduct what they pay in state and local property, income, and sales taxes from their federal returns. It was unlimited. The new law caps any combination of these deductions at $10,000.
As a result, those who pay over $10,000 in combined state and local taxes annually will be impacted by the new limits. People who itemize deductions and whose total state and local taxes are more than $10,000 will get a smaller tax break. For others, the availability of those deductions may determine whether or not they itemize. Therefore, this is especially significant in locations with lower home prices but higher taxes.
Mortgage Interest Deduction Cap
For new loans starting December 15, 2017, the limit for the mortgage interest rate deduction is $750,000. Previously, the limit was $1 million.
Homeowners can refinance their existing mortgage balance up to $1 million while still being able to deduct the interest—the new loan cannot exceed the amount of debt being refinanced.
This creates more risk to large urban areas with high-priced housing like Washington, D.C. and states like California and Hawaii.
Standard Deduction Doubled
In the past, the standard deduction for single taxpayers and married couples filing jointly was $6,350. Under the new law, it is almost doubled to $12,000. The standard deduction for married couples filing jointly is $24,000 under the new law. That’s an increase from $12,700.
Doubling the standard deduction changes the equation when it comes to incentives for home owners. It renders the mortgage interest rate deduction ineffective for the majority of owners.
Because these are recent changes, it is likely that many home owners will likely not feel the effects until next year. For a more in-depth breakdown, I suggest checking out info from the National Association of REALTORS.