Posts Tagged ‘new tax laws’

Final Tax Bill Passes: Effects on Home Ownership

Thursday, December 21st, 2017

The new tax bill finally passed both house and senate. Here are the ways it will effect homeowners and those planning to purchase homes in the near future:

1. Property tax deductions: If you live in a state with high property taxes, like California, you may be in for a higher tax bill. The deductions for state and local income, sales and property taxes will now be limited to $10,000. If your state, like California, allows advanced payment of property taxes, you may want to consider paying the second installment now before the end of the year in order to deduct them on your 2017 taxes – ask you accountant.

2. Mortgage interest deduction: This could be lost if you live in a state with high real estate values: Yes, California is one of those states. The current cap for mortgage interest deductions is limited to mortgages valued up to $1.1 million, but the new bill caps out at $750,000.

3. Home equity deduction changes. The deduction for home equity loans will be limited to $100,000.

4. Capital gain exclusion: Thankfully this has been left as is, which is a big boost for homeowners wishing to sell. The law remains that if you have lived in your home 2 of 5 years prior to the sale date, you WILL be able to avoid paying capital gains taxes on the sale (see below). The capital gain is the difference between what you paid for your home and what you sold it for. For example, if you paid $300k and sold it for $400k, the capital gain is $100k. If you lived in your home at least 2 years you will be able to avoid paying tax on up to $500k of the gain – which will be considered as income – ($250k for married couples filing separately).

5. Second home mortgage interest deductions: You will still be able to deduct interest on mortgage debt for both your primary and second homes, but the interest deduction has been reduced from $1M to $750k ($375k if married and filing separately).

6. Moving expense deduction: Under current law these are allowed for some moving expenses, if you are moving for job purposes. But the new law will allow ONLY active duty military members to use this deduction.

If you have any questions or concerns about the new tax laws, please contact your tax professional. Make sure you understand how you will be affected prior to purchasing or selling real estate.

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New Tax Plan Will Affect Home Sellers Living in Homes Under 5 Years

Monday, December 11th, 2017

If you are a future home seller the new tax plan will affect your taxes, so pay attention. Both the House and Senate bills plan to extend the tax benefit that home sellers receive, and this can hurt your bottom line.

The current law allows home owners a tax break upon resale of their property – primary residences only– if they lived in the home for at least 2 of 5 years. Both new plans will increase that to 5 of 8 years. The House and Senate plan to straighten out the differences in their respective plans by the end of the year, and new laws will likely take effect January 1, 2018. Even if the changes are not made until after the first of the year they will likely be retroactive to January 1.

What this means is that sellers who are thinking of selling their primary residence home in 2018, who have not lived there at least 5 years, will not be able to obtain the current tax benefits allowed to those same sellers who have lived in the home at least 2 years.

If you are thinking of selling your primary residence in 2018 and have not lived there at least 5 years, it is advisable to speak with your accountant to find out how much you will need to pay in taxes. Your adviser may need to wait until the plan is approved in order to calculate this number.

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