How The New Tax Law Impacts
Your Housing Costs
Here are the three biggest changes that homeowners should know about in the new tax law plan.
The mortgage interest deduction:
As it stands today, mortgage interest gets preferential treatment from the IRS. Currently, Americans can deduct mortgage interest on up to $1 million of indebtedness incurred to purchase their home. The average filer who uses this deduction saves approximately $1,900 on their taxes, according to data from the Joint Committee on Taxation.
Under the new tax plan, the deduction would be limited to $750,000 of indebtedness starting with the 2018 tax year. However, filers who have mortgages issued before the Dec. 15, 2017, cutoff would be grandfathered in, and will still be able to deduct interest on up to $1 million of mortgage-related indebtedness.
State and local tax deductions:
Under the old tax law all property taxes paid to state and local governments could be claimed as an itemized deduction. (Assuming one didn't pay the alternative minimum tax.) It was also possible to deduct state and local income or sales taxes. The new law bundles all these so-called "SALT" taxes together and limits the deduction, in total, to $10,000 for both individuals and married couples.
Bringing it all together: Even if the SALT and mortgage-interest changes do not impact you directly, do not assume your net after-tax housing costs will remain the same. The new law roughly doubles the standard deduction to $12,000 for an individual filer and $24,000 for married couples filing jointly. For many couples, the increase in the standard deduction will cancel out the benefit of itemizing, since their mortgage interest and $10,000 SALT deduction combined, won't exceed $24,000.
Capital gains on the sale of your home:
Home owners dodged the bullet on this one. No change. This means a taxpayer who sells a home may exclude up to
$250,000 of gain from taxation ($500,000 if married filing jointly) if he or she has owned and used the home as a primary residence for two of the past five years. Earlier versions of the bill would have increased the ownership and use requirements to five of eight years, and kept higher-income taxpayers from claiming the exemption at all.
Written by Samantha Sharf, FORBES STAFF Jan 9, 2018
Edited By Barbara Allen
|| Barbara Allen
Check Me Out!
Click below to see what properties are currently available or to learn more about me and what I do.