Are you struggling to understand the new tax law and how it will affect if you buy or sell a home? The new law – passed late last year – represents the first significant tax overhaul in more than 30 years.
The first thing to do is take a breath and remember that the law’s provisions will not affect tax filings for 2017. Here are some of the basics:
Income Tax Brackets: The new law retains seven brackets and provides for generally lower tax rates. All individual provisions are effective for the 2018 tax filing year.
Standard Deduction: The standard deduction is roughly doubled to $12,000 for single filers and $24,000 for joint filers.
Primary Residence: Homeowners who remain in a home purchased on or before Dec. 14, 2017, are grandfathered and maintain the $1 million mortgage interest deduction threshold. For primary residences purchased after Dec. 14, 2017, the limit for mortgage interest deduction drops to $750,000. This change will likely impact home sales in markets with above-average home prices. For homeowners in less-expensive housing markets, opting not to itemize and instead taking the new standard deduction may make better financial sense.
State and Local Taxes (SALT): Homeowners may itemize up to $10,000 for the total of state and local property taxes and income or sales taxes. Previously, homeowners could deduct all taxes paid. Homeowners in high property tax states may find a portion of their tax bill to be nondeductible.
Capital Gains: The deductible amount remains at $250,000 if filing single and up to $500,000 if married filing jointly – if the homeowner has lived there for two of the previous five years.
Refinancing: Homeowners may refinance mortgage debts up to $1 million and deduct the interest if they owned the home on or before Dec. 14, 2017,andthe new loan does not exceed the amount of the mortgage being refinanced.
Secondary Residence: Interest paid on second home mortgages is deductible but is subject to the $1 million limit for homes purchased on or before Dec. 14, 2017, and $750,000 for homes purchased after.
Home Equity Debt: Home equity loan or line of credit interest is no longer deductible. Previously, interest paid was deductible for debt up to $50,000 for single filers and $100,000 for married filing jointly. Interest is still deductible on home equity loans (or second mortgages) if the proceeds are used to substantially improve the residence.
Moving Expenses: Moving expenses are no longer deductible except for members of the military.
There’s still a lot to be learned about the new tax law. I highly recommend that you consult a tax professional for questions specific to your unique situation before you buy or sell a home.
Author:Ruby Arias Phone: 623-398-5575 Dated: February 1st 2018 Views: 204 About Ruby: Whether buying or selling a home, you want someone on your side that knows the local market and puts...