Many of us are tired of hearing all of the political feuds etc. However, one that affects many of us as homeowners and even those thinking of becoming first time homebuyers is Trump’s new tax plan. Most of us would agree that we definitely don’t want to read the Tax Cuts and Jobs Act of 2017. Congress approved this major tax reform on December 22, 2017 and it is currently being implemented. Many ask, how does that affect me and why should I care? Well if you are a homeowner or plan to become a homeowner, this is what you should know and consider as it relates to Trump’s tax plan. If you are a millennial thinking of buying your first home, or someone living in a high-cost housing market, you will want to read this article.
How does the Tax Cuts and Jobs Act of 2017 affect deductions on property taxes?
Under the new plan, there is a cap for the amount of the deduction. Property taxes will only be deductible up to $10,000. So if you live in high tax metropolitan areas such as New York City, Boston, San Francisco, Washington, DC or Chicago and have an expensive home, you may not be able to deduct all of your property taxes. Thus, your home just got more expensive.
What about mortgage deductions?
The mortgage deduction has been reduced to $750,000 for new homeowners. However, current mortgages are deductible up to 1 million due to being grandfathered.
What if I have an equity-equity debt?
Under the old plan, you could deduct home equity loans. However, this is no longer possible unless you substantially improve the residence.
Do I have to pay capital gains if I sell my home?
Typically, your primary residence is exempt from capital gains if you have lived in the property for 2 years during a five year period before you sell it. The exemption applies to up to $250,000 of profits for an individual and up to $500,000 in profits if you are married.
Is it going to be a buyer’s or seller’s market?
Over time, this changes over and over again. At the end of the day, it is basic economics, supply and demand. The more homes that are on the market, the lesser the price and the less homes on the market, the higher the price.
What are the housing experts saying about the new tax plan?
The National Association of Home Builders has cited concerns that the tax plan will cause housing recessions in some of the biggest markets in the country. For example, they estimated that 7 million homes would be excluded from mortgage-interest deduction. The new deductions (up to $750,000 for mortgages made after December 14, 2017) are far less valuable than they were before.
The Bottom Line
If you have a home or are purchasing a home on the expensive end, the disadvantages to the new tax laws are twofold. One, you may end up paying more because you are capped on the amount of deductions that you can take on property taxes (capped at $10,000). Two, if you buy a home now, you are capped at deducting mortgage interest up to $750,000, which is a lower limit than before.
Lastly, you now longer have the benefit of claiming home equity loan deduction in most cases.