The newly approved tax reform plan includes several changes beyond the new income tax brackets. The changes to the tax code are billed as an effort to reduce the complexity of the tax system. The new tax bill raised the standard deduction and reduced or eliminated some of the itemized deductions available and lowered the overall tax brackets.
For some, this is good news, for others it’s great news, and for some, it’s not good news at all. Overall, real estate was impacted in several ways by the changes in the new tax bill and it may make sense for more homeowners to take the standard deduction, rather than to itemize. As always, consult with your accountant or tax preparer for your own specific impacts, but we’ve provided an overview of the changes here for information purposes.
Mortgage Interest Tax Deduction
Beginning with mortgages take out on December 14, the new cap for Mortgage Interest is $750,000. This includes mortgages on a second home. For example, if you have a primary residence that is worth $500,000, you can deduct the mortgage interest on your second home up to $250,000. If you take out a mortgage of $850,000 on a single home, the mortgage interest on the first $750,000 will still be tax deductible. The cap was $1M prior to the tax reforms and home loans prior to December 14th are grandfathered in and homeowners will continue to be allowed to deduct the mortgage insurance up to $1M.
Beginning in 2018, the interest on Home Equity loans is also no longer tax deductible.
SALT (State and Local Tax) Deduction
The new combined total for State and Local taxes is $10,000. Prior to the tax changes, homeowners were able to deduct the greater of their property taxes or state income taxes. The new law allows homeowners to deduct up to $10,000 for all local taxes. This is a higher burden to those living in states with both high property taxes and high income taxes, such as New York and New Jersey. It is a benefit to those living in states with zero income taxes, such as Florida and Nevada.
Moving Expense Deduction
With nearly 4 out of 5 residents as transplants, the Moving Expense Deduction may impact the Charlotte market most of all the changes in the new tax bill. Beginning in 2018, the moving expense deduction is suspended until 2025. Prior to the new tax code changes, you could deduct the cost of a move if your place of employment was over 50 miles from your previous place of employment.