An Important Word from Carrianne:
Tax Changes Debunked . . .
By now you’ve heard that tax laws have changed for 2018 and this means BIG changes for those who own real estate and who itemize deductions. It’s always a good idea to consult with your tax professional before making any major changes but here are a few highlights to provide you with some talking points.
- What is SALT?
Salt is the State And Local Tax deduction. This deduction will now be limited to $10,000. While this won’t have much effect in the Midwest, high income tax, high property value states like California are affected. For example, if your annual property taxes are $5,000 and you pay $10,000 a year in state income tax, for 2017 you could deduct all $15,00 against your Federal taxes; in 2018, this will be capped at $10,000. Fortunately, this loss of deduction is offset for many taxpayers by lower overall tax rates.
- Mortgage Interest
Previously, annual Mortgage Interest on up to a $1,000,000 loan on a primary residence was tax deductible. This will be limited to $750,000 for new loans taken out after Dec 14, 2017. For most of the nation, this isn’t a big deal but in high cost areas like San Francisco where the median home price is $1.5 million, this could affect affordability for some buyers.
Home Equity Lines of Credit are a popular way for people to access value in their home to pay off other debts, fund education like college, and other miscellaneous life events. Because it is a loan taken out against a property, the interest on these used to be tax deductible. Some sources are saying this tax deduction is GONE completely while others indicate there may be an exception if the loan is used to purchase or improve the property. This is a great reason to consider Renovation Financing instead of a HELOC if you are planning to remodel.
- Selling a home? Capital Gains Exclusion
Home sellers have been able to exclude up to $250,000 (for single filers) or $500,000 (for joint filers) of capital gains on the sale of a primary home as long as they lived there 2 of the past 5 years. One of the major changes proposed was that the exclusion would only apply if they lived there 5 of the last 8 years. This could have reduced the number of homes for sale further, exacerbating the housing shortage we are experiencing but fortunately, at the 10th hour, they decided not to make changes keeping the exclusion for residents of 2 of the past 5 years.
PrimeLending, A PlainsCapital Company NMLS # 13649, Equal Housing Lender.
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