Just before the New Year, President Trump signed the Tax Cuts and Jobs Act. You’ve probably read a bit on the topic, but what does it mean for all you valued homeowners out there?
The National Association of REALTORS® (NAR) worked throughout the tax reform process, on behalf of all of us, to preserve the existing tax benefits of homeowners and investors. Although many areas of the old law were retained, there were also many changes. Let’s take a look at what is different – spark notes style.
Provisions Affecting Current and Prospective Homeowners:
Tax Rate Reductions – The new law, in general, provides lower tax rates for those filing individually. Although many will pay lower taxes, it is not a blanket rule. The tax rate schedule retains seven brackets with slightly lower marginal rates of 10%, 12%, 22%, 24%, 32%, 35%, and 37%. However, the current maximum rates on net capital gains remains the same. Over the next decade, the total size of the tax cut from the rate reductions equals more than $1.2 trillion.
Mortgage Interest Deduction – Now, for loans taken out, the new limit on deductible mortgage debt has been reduced from $1 million to $750,000. Current loans of up to $1 million are grandfathered. The final bill repealed the deduction for interest paid on home equity debt through the end of the year 2025. And if the proceeds are used to improve your property, interest is still deductible on home equity loans or second mortgages. Second homes? Interest remains deductable, but is still subject to the aforementioned limits.
Standard Deduction – The new standard deduction for single filers is $12,000 and $24,000 for joint returns (indexed for inflation). This significant increase will reduce the value of the mortgage interest and property tax deductions as tax incentives for homeownership.
Repeal of Personal Exemptions – Before, filers could deduct $4,150 in 2018 for the filer and their spouse and each dependent (if any). These exemptions have been repealed in the new law. This change alone mitigates (may even eliminate) the positive aspects of the higher standard deduction, as it would more than make up for the loss of not receiving personal exemptions.
Deduction for State and Local Taxes – Although Texas doesn’t have state taxes, the new bill allows an itemized deduction of up to $10,000 for the total of state and local property taxes and income or sales taxes.
Deduction for Casualty Losses – Now there is a deduction only if a loss is attributable to a presidentially-declared disaster.
Moving Expenses – The final bill repeals moving expense deduction and exclusion, except for members of the Armed Forces.
It sounds as though home ownership will continue to be a strong and stable driver for our economy. And NAR will continue to work hard for us. They said it best: “Home ownership is not a special interest, it is our common interest.”
