A new year and a new tax law
are now a reality, but what does that mean for current property owners and the housing market?
Many people are concerned about the new tax code changes and rightfully so. This in itself is enough to affect the market.
The Standard Deduction Changes
The good news here the standard deduction with the new tax law is almost double the old one. The deductions are as follows:
- Single filers – the standard deduction went from $6,350 up to $12,000.
- Married filers – the standard deduction went from $12,700 up to $24,000.
What About the State, Local, and Property Tax Deductions?
State and local taxes, also referred to as salt, will stay the same for everyone who itemizes. However, there is now a $10,000 cap on those deductions. Under the old law, filers were able to deduct an unlimited amount for their state taxes, local property taxes, as well as income and sales tax.
What Could Have Happened But Didn’t
As the saying goes “it could have been worse.” Here are some of the changes that could have happened but didn’t.
- The initial versions of the tax plan eliminated property tax deductions completely.
- There was a clause that would have reduced the mortgage interest cap even more than the current version.
- The previous versions of the bill would have increased the ownership and use requirements from two of five years up to five of eight years. This one change alone would have prevented high-income taxpayers from being able to claim the exemption at all.
The Mortgage Interest Deduction
If you are a current homeowner, nothing has changed, you will still be able to take the same mortgage interest deduction you’ve always taken. However, going forward, when you buy a new home, your mortgage interest deduction will only be allowed on the interest paid on mortgage debt of up to $750,000. Under the old law, you were allowed to deduct interest paid on mortgage debt up to $1 million.
How the New Tax Law Simplifies Things
Fortunately, even if the salt and mortgage interest changes don’t affect you directly, your net-after tax housing costs will stay the same since the standard deduction has been doubled. That means, in most cases, the increase in the standard deduction will eliminate any benefit you would get from itemizing because the combination of the mortgage interest and the $10,000 salt deduction will not exceed $24,000. This alone will simplify the tax process!
Are There Any Changes to the Capital Gains Tax?
There are no changes for anyone selling their primary residence. If you’ve owned your home for two of the last five years, you won’t own any capital gains taxes based on the following:
- Single sellers – no taxes on the first $250,000 gain.
- Married sellers – no taxes on the first $500,000 gain.
What About Moving Expenses?
A bit of a disappointment here. Moving expenses can no longer be deducted when you’ve had to move for your job. However, there are some exceptions for those in the military.
2017 Versus 2018
The new tax law will not affect your 2017 taxes. The changes are only applicable going forward. And as far as how all of this will impact the local housing markets, only time will tell.
There’s no need to negatively speculate anything at this point. We should all try to remain positive and hope this new law will make the impact hoped for while leading our country in the right direction.
If you are thinking about buying or selling a home in Silicone Valley, or you have some questions about how the new tax law will impact your decision, please Contact Suzanne Freeze-Manning
today. Suzanne has a business background and is a 20-year veteran of the real estate industry. Therefore, with her market knowledge, negotiation skills, and transaction management experience, she is the absolute best advocate for buying or selling a home in this ever-changing market.