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Homeowners and the Tax Reform Bill | 5 Things You Need to Know

This week Congress passed the final version of the Tax Cuts and Jobs Act. There have been a few different versions of the bill and thus some confusion surrounding it. The good news is, the final version will not have a significant impact on most homeowners.

What You Need to Know:

  • The capital gains tax exemption stays the same. You will still be exempt from the first $250,000 profit in the sale of your home ($500,000 if filing jointly) as long as you have lived there for 2 out of the past 5 years.
  • The property and income tax deduction is capped at $10,000. This will mostly affect homeowners in higher price brackets.
  • The mortgage interest deduction is capped at $750,000. You can write off the interest you pay on your mortgage up to a $750,000 loan amount, down from $1 million previously.
  • The mortgage interest deduction for home equity loans is eliminated unless you are using the loan for substantial home renovations.
  • The estate tax exemption is increased to $11 million, meaning most everyone will now be exempt.

Potential Impacts on the Market:

  • Home values in the area may drop temporarily. We would likely see this in late 2018 through 2019. Projections are as high as a 10% drop in some neighborhoods as the market adjusts to the new regulations, and should correct itself by spring of 2020.
  • Inventory may get lower. If home prices drop, many homeowners may wait longer to sell, leaving less on the market for buyers to purchase.

Positive Points:

  • If you currently own a home, you are grandfathered in to the previous tax laws.
  • Many purchasers in lower price brackets will not see much of an impact at all.
  • The standard deduction will double, offsetting some of the eliminated homeowner tax incentives.
  • An initial reduction in tax brackets may allow some buyers to save a more for down payments.
  • Ultimately, people buy and sell homes because of life events, not solely because of tax incentives, and that will continue to drive the market.

What You Should Do Next:

  • Consult with your accountant, CPA or tax professional




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