The tax reform bill that passed just before Christmas 2017, and which goes into effect immediately, has some significant changes that may impact potential homebuyers.
You may be saying to yourself—in the spirit of Dr. McCoy from the original Star Trek—“For God’s sake, Jim! I’m a Realtor, not an accountant!” Still, you must remember that some of the customers you are marketing to may have some questions. It is important that you understand how the new law will impact individuals and families shopping for a home
Deductions for income, property and sales tax
The most significant part of the legislation pertains to state and local property taxes. Previously, the homeowner could deduct the full amount of property and state income tax they paid. Now, they can only deduct up to $10,000.
Homeowners who exceed the cap may choose between sales, property, or income taxes where applicable. This new restriction is unlikely to affect middle and lower income homeowners. Congress is assuming that those in the upper tax brackets are not likely to view this as a deterrent, considering the overall bill tends to favor the wealthy. That, of course, remains to be seen.
The mortgage interest deduction has been cut in half. For any new mortgage dated December 14, 2017 and after, the mortgage debt used to purchase or improve the home as an itemized deduction has dropped from $1 million dollars to $750.000. The new law does not affect homeowners with an existing mortgage prior to this date.
There’s good news for millennials. While the House of Representatives pushed to eliminate student and graduate student loan interest deductions, the Senate won the day leaving both intact.
Individuals and families
There’s no change to the personal exemption; it remains at $4,150. The standard deduction doubles from $6,500 to $12,000 for singles and from $13,000 to $24,000 for married couples filing jointly. For families with children, the tax credit per child has doubled from $1,000 to $2,000. And, Congress introduced a $500 family tax credit for non-child dependents—that is, children that parents may be supporting that would not qualify for the child tax credit.
It is important to note that all of the new provisions listed above are set to expire in 2025.