Posted on 1/2/2018 by Stanley Martin Homes
It's still too early to gauge the total impact of the new Tax Cuts and Jobs Act on the housing and real estate markets, but that doesn't mean you shouldn't begin to understand what the law means to you and your family.
Depending on the size of your mortgage, you may be affected by the new tax law or you may not be affected at all. The new legislation, signed into law on Dec. 22, 2017, impacts prospective, new, and current homeowners in different ways. If you're in the process of buying your first or second (vacation) home, staying in-the-know about the new law is a smart move.
How the New Tax Law May Affect Homeowners
Some of the new tax law deductions are aimed at new homeowners, while other changes may impact your bottom line even if you've owned a home for years. If you have an equity loan, you'll see noticeable changes to your allowed deductions as part of the new tax law.
MORTGAGE INTEREST DEDUCTION CHANGES
New Homeowners(If you bought a home in 2017): One of the most impactful changes of the new tax law reduces the limit on deductible mortgage debt to $750,000 combined for new loans for both primary and secondary (vacation) homes; current loans up to $1 million will be grandfathered in. As most consumers own homes that are valued under $750,000, this won't have a huge impact on the average homeowner, but it will affect people in higher-end homes who were previously able to deduct the entire amount.
Refinancing: Homeowners will be allowed to refinance mortgage debts that existed on Dec. 14, 2017, up to $1 million and still deduct the interest if the new loan does not exceed the amount refinanced.
Equity Debt: The act repeals the deduction for interest paid on home equity debt through 12/31/2025; interest is still deductible on home equity loans if proceeds are used to substantially improve the residence.
Second (Vacation) Homes: Interest remains deductible on second homes, subject to the new deductible limits.
STATE AND LOCAL TAXES
The new tax law still allows you to deduct state and local property taxes and income or sales taxes, but caps these itemized deductions at $10,000. This means you'll have to decide which taxes you'll want to include as part of this new, limited deduction amount.
The new bill eliminates, or repeals, moving expense deductions and exclusions, except for members of the Armed Forces.
WHAT REMAINS THE SAME
While the above changes are notable, there are many mortgage-related aspects that were left untouched by the new bill.
MORTGAGE CREDIT CERTIFICATES
The final bill retains the availability of Mortgage Credit Certificates, which helps lower income families afford new homes by letting them claim a dollar-for-dollar tax reduction against their federal tax liability up to a certain amount.
EXCLUSION OF GAIN ON SALE OF PRINCIPAL RESIDENCE
There is no change in this code. The new law keeps the current law as is. If you've lived in your house for at least two of the last five years, you won't have to pay capital gain taxes if you sell your home.
The information we've covered above is not considered legal or financial advice. Instead, we just wanted to make you aware of the new law and how it may affect you and your family. We recommend talking to legal and financial experts for specific information that applies to you when it comes to the Tax Cuts and Jobs Act.
Please reach out to a First Heritage Mortgage loan officer for additional details related to your specific financial situation.
Morning Room in New Homes For Sale in Raleigh, NC