As a Realtor, it is my responsibility my clients to stay current on any issue that impacts homeownership including taxes. If you are a homeowner, you may be wondering what the impact of the tax bill will be to you. As most of the changes take effect on the 2018 tax year most of the tax preparers are waiting for direction. However, there are a few areas where the tax implications are known so I am covering them today.
MORTGAGE INTEREST DEDUCTION
For many people, the mortgage interest deduction is one of the few remaining write-offs they have. In the original House bill, the mortgage interest deduction was limited to $500,000 and second homes were no longer allowed for the deduction. Congress apparently heard the concern being voiced before they finalized the bill as the mortgage interest deduction was lowered from $1 million to $750,000 with a mortgage age condition instead. The reduced mortgage limit of $750,000 only applies to mortgages originated after 12/14/2017. For mortgages originated before 12/14/2017 the mortgage interest remains deductible on existing mortgages up to $1 million. The second home mortgage interest deduction is also still allowed. Additionally, the homeowner with a grandfathered $1 million loan can also refinance that loan and maintain the $1 million deductibility limit as long as the new loan amount does not exceed the amount of the mortgage being refinanced. Granted there are certain areas where 750,000 mortgages are more common. In those areas, the new bill could have a negative impact on home prices. As the median home price in Colorado is below $400,000, the limit to $750,000 won’t impact most people.
GAIN ON SALE OF HOME
This item was also causing quite a bit of concern prior to the passage of the bill. In the original House and Senate bill, the time a homeowner must live in their home to qualify for a capital gains exclusion would have changed from 2 out of the last 5 years to 5 of the last 8 years. If passed, many potential sellers might have delayed selling their home for a year or two to avoid the capital gain tax. With Colorado’s limited housing inventory, this would have further reduced the number of homes available. Thankfully, this item was removed so the exclusion has not changed. The exclusion allows homeowners that have lived in their home for 2 of the last 5 years to exclude up to $250,000 of capital gain as a single person or $500,000 as a married couple.
STANDARD DEDUCTION
The final bill doubled the standard deduction for joint filers. Because the tax advantages won’t be significant most homeowners won’t itemize deductions for mortgage interest and property taxes. If you find itemizing cumbersome you might find the change an improvement. Some real estate professionals feel that without the tax difference between renting and owning a home, some people will choose to rent rather than buy. This would reduce the demand for homes. Personally, I believe most people buy a home for reasons other than the tax write off. My clients express a desire to be able to buy a home they can personalize as their own. Or they want to be in a specific school district. Another reason expressed is the benefits of a long-term investment as property values have always increased, some years more than others. All of these reasons are not available to a renter.
DEDUCTION FOR STATE AND LOCAL TAXES
The final bill still allows homeowners to deduct property taxes but sets a cap on the amount of the deduction at $10,000 for both single and married couples. Where property taxes are higher in certain states, the $10,000 limit is significant. As property taxes remain comparatively low in Colorado, the deduction limit probably won’t have much impact on our housing market.
No comments:
Post a Comment