A new year has started, and with it a newly enacted tax policy: the Tax Cuts and Jobs Act. While most changes will not be noticeable until consumers file their taxes in 2019, the new tax law stands to alter how consumers view homeownership incentives and could impact real estate markets across the country. Additionally, many consumers, but not all, may see a change to their paychecks by next month due to the new tax rate deductions. These are the biggest real estate-related tax policies and how they could affect homeowners.
1. Cap on Mortgage Interest Deduction
The Tax Cuts and Jobs Act reduced the limit for the mortgage interest rate deduction for new loans starting Dec. 15 to $750,000. Loans that were taken out before this date are grandfathered into the previous tax policy, which featured a $1 million cap on the deduction. Homeowners can refinance their existing mortgage balance up to $1 million while still being able to deduct the interest—the new loan cannot exceed the amount of debt being refinanced.
“Although only 1.3 percent of all U.S. mortgages are likely to be impacted by the capping of the mortgage interest deduction, it poses a risk to large urban areas with high-priced housing stock,” says realtor.com® Senior Economist Joseph Kirchner, Ph.D. “The No. 1 area with the greatest risk to its home prices and sales is Washington, D.C., followed by California, Hawaii, Massachusetts and New York.”
Some tax experts state that the overall impact of these changes will not be seen until current homeowners sell, in which case the purchased property would come under the new regulations.
“Most estimates suggest that by limiting some buyers’ purchasing power, capping the deduction could contribute to slower home value growth in the priciest communities, moderating the gains longtime homeowners can expect when they do eventually sell,” says Alexander Casey, Zillow Group Policy Advisor.
Related story: More than half (56.7 percent) of RISMedia readers believe the tax bill is not “good for homeownership,” according to a poll conducted Dec. 20-21; 32.3 percent believe it is, however, and 11 percent are “not sure.”
2. New SALT Deduction Limit
In the final bill, taxpayers can itemize deductions up to $10,000 for their total state and local property taxes and income or sales taxes. The cap is the same for both individual and married filers.
“Households that pay more than $10,000 in combined state and local taxes each year will be impacted by the new SALT limits,” Casey says. “On one hand, taxpayers who still itemize deductions and whose total state and local tax liability exceeds $10,000 will get a smaller tax break; however, for other households, the continued availability of those deductions, even if they are capped, may be the deciding factor between whether or not they itemize deductions. This matters a lot in areas where SALT deductions were a relatively more significant reason for itemizing—areas with lower home prices, but higher taxes (e.g., upstate New York, Southern New Jersey, Inland California).”
In the previous law, the SALT deduction …read more
From:: Real Estate News