Passed by Congress on December 20th and on its way to be signed by the President, the new tax reform bill has left many people wondering what this means for real estate. Being the "largest set of changes to the tax code in a generation," according to Inman, a real estate industry news source, means we can expect it to have a significant impact on the industry at large. Along with general tax rate cuts across the board, here are some highlights from the bill and what it will affect going forward:
Mortgage interest - For those who itemize and include mortgage interest as a deductible item when filing, the deductible amount was lowered to $750,000, while the previous maximum was $1 million. This will not affect current homeowners, but new homes purchased in the future.
State and local tax deductions - At the state level, the maximum deductible combined property and income tax is now $10,000, both for those filing individually or jointly, which previously had no cap. This finalized law is an improvement over the original proposal, which called for an elimination of this deduction entirely.
Capital gains - Those who were worried about the bill changing the qualifications for excluding gains from the sale of a home from taxable income can rest easy - the final bill retains the current law of $250,000 on an individual's sale and $500,000 for married couples, as long as they have lived in the residence for at least 2 of the 5 years preceding the sale. If a home owner doesn't qualify for the capital gains exclusion when they sell, the current-law maximum rates (generally 15%) still apply.
Standard deduction - The new standard deduction (the amount you can subtract from your income before calculating taxes if you are not itemizing your return) has increased to $12,000 for individuals and $24,000 for married couples filing jointly, doubling the previously allowed amount. According to NAR, "Congress has greatly reduced the value of the mortgage interest and property tax deductions as tax incentives for homeownership," with the increase in the standard deduction, effectively eliminating the tax benefit of owning a home for most.
For more information and full details of what the bill entails, see NAR's breakdown here, and please consult your tax attorney with any individual concerns.