Skip to main content

The New Tax Plan: When It Comes To Real Estate, Who Wins And Who Loses? WRITTEN BY JAYMI NACIRI

We have all heard a lot about the new tax plan, which was approved and sent to President Trump to be signed on Wednesday, Dec. 20. Depending on where your politics lie and your individual financial situation, you may have a positive or negative take on the tax bill. But how does it impact real estate? That also depends on a few things, like where you are buying a house, how much money you have, and what you intend to do with it.
"The new tax plan has been framed as a deathblow to the American dream by some real estate professionals and groups, who warn of falling home prices, a new generation trapped in renting, and an exodus of residents from the highest-cost cities and states," said Realtor.com. "But are these fears surrounding the new, lower cap on mortgage interest deduction - and the incentive for taxpayers not to use it - overblown? Or are there indeed big repercussions to come? That all depends on whom you ask - and where they live."
We're breaking down the winners and losers as it relates to real estate.
Everyone: Winners-ish
The mortgage deduction has been among the most talked-up portion of the tax bill, especially in relation to the standard deduction. The new tax code doubles this deduction; new amounts are $12,000 for individual filers and $24,000 for married couples who file jointly. On the surface, this seems like great news. However, the elimination of other deductions that formerly incentivized itemization may mean more tax filers go the standard route. So, is that a bad thing?
According to the Pew Charitable Trusts, most taxpayers - as many as two-thirds - don't itemize their tax bills anyway, which means they aren't claiming the deductions that are available to them.
"On a scale of 1 to 10 on if interest deductibility is going to have a big impact on housing, it's a 2," Ken Johnson, a real estate economist at Florida Atlantic University in Boca Raton, told Realtor.com. "It's not clear that it will hurt housing. But it is clear that it's not going to help."
According to the New York Times, "Today, a little under half of American homes are worth enough to justify itemizing mortgage interest and property taxes. Under the tax legislation, that figure would fall to close to 14 percent.
The new limit on property tax deductions makes the "to itemize or not to itemize" conversation even more muddy.
"Can I still deduct my state and local taxes? Up to a point, and you'll have to make a choice," said CBS News. "Filers will be able to write off the cost of state and local taxes, up to $10,000. And they must choose from among sales, income and property taxes for the deduction, instead of being able to deduct all local taxes."
This is most relevant to those who live in "states with high income and property taxes," said the Motley Fool. "Whether or not state and local taxes (SALT) should be deductible has been a hot button issue in this year's tax debate. The GOP's final bill allows taxpayers to deduct only up to $10,000 of state and local property taxes ($5,000 for married taxpayers filing a separate return). Under current tax law, there is no limit on how much state or local taxes can be deducted from your federal taxes. The state and local tax deduction is important because it is frequently one of homeowners' largest deductions outside mortgage interest. As it stands today, the mortgage interest tax deduction primarily benefits people who incur substantial mortgage interest on a residence in a state or municipality with relatively high income and property taxes. That's because the mortgage interest tax deduction only matters if your total deductions exceed the standard deduction."
Luxury buyers: Could see a hit
At one point, there was talk that the bill was going to eliminate the mortgage interest deduction, sending industry experts into a what-if tailspin. The $750,000 cap - it was previously $1 million - on the mortgage interest deduction means luxury buyers could see a pinch.
"Under the new tax plan, the deduction would be limited to $750,000 of indebtedness starting with the 2018 tax year," said The Motley Fool. "However, filers who have mortgages issued before the Dec. 15, 2017, cutoff would be grandfathered in, and will still be able to deduct interest on up to $1 million of mortgage-related indebtedness." 
First-time buyers: Mostly unaffected depending on price point
Those who are just buying a new home or who recently have may not feel any pain if their home price is under $750,000 - the cap for the home mortgage interest deduction on the new tax bill.
"The vast majority of new homeowners won't be affected, as the median home price is nowhere near $750,0000," said Realtor.com. "The median list price is $270,000 nationally. Additionally, "Existing homeowners will be grandfathered into the previous deduction limit. So the new cut is expected to affect only about 1.3% of new mortgages. These are likely to be awarded to the wealthiest homeowners, who can at least theoretically afford the cuts, and those living in the most expensive parts of the country."
Home equity loan lovers - Losers unless you use the equity for your home
The tax bill will require greater scrutiny from homeowners looking to use their home equity. Gone is the ability to use it however how want it and get a write off - currently, you can deduct the interest on as much as $100,000. Use your home equity line of credit (HELOC) to finance a car or a vacation under the new plan, and you will no longer be able to deduct the interest.
Real estate investors: Winners
Some of the real winners of the new tax plan are investors, who are already able to write off "all the expenses of owning and running a rental because the properties are considered a business," said CNBC. "The interest on those mortgages, along with repair and management costs, are deducted from the income the property produces. Investors are only taxed on that income, so by reducing it, the investment acts as a tax shelter." This is unchanged by the new bill.
"The tax plan could, however, drive increased demand for single-family rentals because it will reduce the tax benefits of homeownership. The proposal could eliminate the deduction for property taxes as well as lower the limit on the mortgage interest deduction. That would hit all homeowners who itemize and especially those owners of higher-cost properties in expensive locations. That, in turn, would benefit landlords."
There will also be a benefit to investors of real-estate investment trusts, who "will have a smaller tax bill on dividends with the new Republican tax plan," said the The Wall Street Journal. "The tax plan features a deduction for pass-through businesses - income derived from commercial activities that their owners or shareholders pay on their personal income taxes. That deduction includes the income that flows to REIT investors through dividends - mainly from rent or mortgage interest - but not the capital gains secured when properties are sold."

Comments

Popular posts from this blog

10 Reasons to Sell Your Home in the Winter with us!

1.Serious & Motivated Buyers!
Chances are, the buyers you meet are more serious about purchasing. Not that spring and summer buyers aren’t, but winter buyers tend to be more motivated to find a home that is best for them and to get the deal done.
2.Less Competition
Most people think waiting for the 2018 spring and summer market is ideal, so there is a rush of homes hitting the market once the spring season hits. By listing a few months earlier, you don’t have nearly as many houses to compete with and your house is more visible to buyers.
3.Marketing
Since the market is slower during the winter months, most agents and offices have less inventory, which then means, your home should be advertised more often. Less inventory means more free time to increase marketing efforts.
4.Fewer Showings
During the cold weather and holidays, there are fewer buyers which mean fewer showings but again, those buyers are usually very serious about making a purchase if they are out house hunting durin…

Want to throw the ultimate #SuperBowl party? Here are some tips!

So you want to throw the most memorable Super Bowl Game party that your friends will be talking about until … well, next year? Here’s a few things you can do to score a touchdown of your own this season.PLAN YOUR GUEST LIST Your number one to-do for the big game is be prepared. Plan your guest list before sending out any invites. Build your list according to how many people you can comfortably fit in your home or specified venue. Think about who will need a spot to sit and watch the entire game in comfort and who will be up moving and mingling with friends. An extra rule-of-thumb: be sure that everyone can see a TV!CLEAN UP, STOCK UP, SET UP The week before the party give yourself plenty of time to do a deep clean. Vacuum, dust, windex, get rid of all of the dog hair… you know what to do. Once your home is squared away and there’s room for supplies, it will be time to stock up with groceries, party supplies, ingredients for the best game day dishes and cocktails (keep reading!), and …

Q and A with Chris Fritch #heirs #taxes written by Benny L Kass

Q.
My wife and I are retired and are in our seventies. We have two children, and our house is currently worth approximately $300,000. We purchased the property many years ago for $32,000, and currently have a very small mortgage and a $40,000 home equity loan. We are debating on whether to sell the house and take the up-to-$500,000 exclusion of gain or to let our children inherit the house when we pass on.

What are the implications of all of this appreciation on our estate if we do not sell our house before we die. Must my heirs pay tax on the entire appreciation? How is this covered in the Tax Code? A.  This is a very complicated issue, and you must seek advice from your tax advisors. It is especially important now that Congress has enacted a major change in the tax laws -- much of which is still under review by the tax experts. You should also discuss your concerns with your children, although the final decision can only be made by you. Oversimplified, the basis of inherited property…