As you’ve probably heard by now, the government has passed sweeping legislation to dramatically change our tax code. A lot of things are going to change.
Before I get started, let me just remind you that if you need individualized tax advice, you should consult your tax advisor. However, I want to provide you with some helpful information about how the changes could affect your mortgage and other payments.
The main driver in the changes is that the standard deduction has been increased to $12,000 for an individual and $24,000 for a couple. This is important because it will encourage more people to claim the standard deduction as opposed to itemizing those deductions. As it relates to real estate and real estate finance, there are three ways the new tax code may affect you. And, one important tax benefit that is staying put.
1. Mortgage interest deduction. Previously, you could deduct the mortgage interest on a loan up to $1 million. That number has been lowered to $750,000. While that’s still a very large number, this change will undoubtedly affect some people at the upper end of the market.
2. Equity indebtedness. If you’ve taken cash out of your property at some point in the past, there were complex rules about what can and can’t be deducted. Starting in 2018, none of the interest on the equity piece of your loan can be deducted. If this is something that might affect you, I recommend discussing it with your tax advisor.
3. The property tax exemption. You’re only going to be allowed to deduct up to $10,000 on your property taxes. Although that might sound like a large number, especially in the DFW area, it’s not the largest property assessed value that affects you. Keep that in mind.
The key benefit that is remaining from the previous tax policy is the capital gains exclusion, allowing you to deduct up to $250,000 in capital gains on the sale of a property if you’re single and $500,000 if you file jointly I know many real estate investors who have greatly benefited from the exclusion.
If you have any concerns about the new tax bill and how it will affect you, it may be worth the time to consult with your tax advisor. If you plan to buy a home in 2018, don’t hesitate to reach out and give me a call. I am happy to help answer any questions you may have.