The Tax Cuts and Jobs Act Effect on Real Estate

Questions about the new tax plan have been swirling for months. As of this writing, the bill has not been signed by the President but there seems to be no reason why it won't be shortly. If you're a homeowner, or have been thinking about becoming one, here are a few points that might be of interest to you:

• The new bill limits the deduction for the total of state and local property taxes and income or sales taxes to $10,000 for either individual or married couples filing jointly. It also precludes the deduction of 2018 state and local income taxes prepaid in 2017.
• Up until now, homeowners were allowed to deduct the interest paid on their mortgage loans up to $1,000,000. Going forward, the new limit will be $750,000. This probably won't affect the majority of homeowners, though, since existing loans will be grandfathered in at the old levels. Additionally, the median sales price nationally is about one-third of the new limit so only those that purchase in more expensive zip codes will notice a difference. 
• The standard deduction is being doubled to $12,000 for individual filers and $24,000 for joint filers. This is likely to reduce the amount of people who itemize, which could also reduce the impact of the lower mortgage interest deduction limit.
• In the past, the IRS has allowed a deduction for uncompensated casualty and theft losses related to your home or vehicle. Now the deduction can be taken only if the loss is related to a presidentially-declared disaster.
• A deduction was also allowed for moving expenses, should the relocation be job related. That deduction has been eliminated for everyone except for members of the military.
• For developers, the Low-Income Housing Tax Credit has been retained, which allows qualified agencies to issue tax credits for the development of affordable housing around the country. However, a lower corporate rate will devalue the credits in the future and likely contribute to a decrease in low-income housing being developed. 
• The Historic Tax Credit, which provides for the rehabilitation and preservation of aging structures has been retained but modified. Gone is the 10% credit for buildings older than 1936; now the building must be a certified historic structure to receive a 20% credit.
• The final bill increases the amount of eligible qualified property that commercial real estate owners can immediately expense from $500,000 to $1,000,000. While land and buildings do not qualify, improvements to non-residential property do, such as HVAC systems, roofs and security systems. 
• The final bill retains the current law on the capital gains exclusion, Mortgage Credit Certificates, and carried interest compensation and 1031 Exchanges for investors. Homeowners may still deduct interest on their home equity loans as long as the funds are used to substantially improve their property.

I've seen a lot of difference scenarios run and tax liability calculated so far and I have to say that I'm having a hard time keeping the effects of the various changes in my head all at once. This might be a good year to talk to a financial professional to determine how buying a home or investment property will affect your specific situation. If you need a good resource, let me know - between myself and the cooperating agents in my office I've got a great team of experts that can advise you.

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I would love to help you with your real estate journey. 

Please contact me at 303-917-7143 or robbin@stauferteam.com

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