Here’s Everything Homeowners Need to Know About the New Tax Laws
Not sure how the Tax Cut and Jobs Act affects you? Here's a break down.
So, Now What?
With the passing of the Tax Cut and Jobs Act, a lot is about to change financially for citizens in the United States. One of the ways this change will affect citizens greatly is how it will reflect financially for homeowners. Although this tax cut is for 2018 (meaning citizens won’t see changes until February of 2019), there will still be a dramatic change for U.S. homeownership. Here’s what you need to know, thanks to the National Association of Realtors (NAR).
If You’re Looking for a New Home
You actually may have some difficulty finding a home if you plan on buying one in 2018. All buyers will no longer have personal exemptions, but standard deductions do increase. Although there is a chance to receive a higher tax cut than before, it is actually possible for people to experience even more of a tax cut when they rent. This means the housing market could become less attractive to first-time homeowners, which could result in a dry market.
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If Your House is Expensive
This could affect you negatively in a few ways, but you may see a few benefits in other areas. The new deductible property amount is at $10,000, and there could also be scaling back of the mortgage interest deduction. Previously homeowners could deduct interest up to $1 million, but that has been lowered to $750,000.
If Your House Sits at an Average Price
Good news, you can probably save money. Thanks to the new deduction standards, moderately priced homeowners can save money (if they have no other deductible expenses). This act will actually double the standard deduction, reducing the value of the mortgage interest and property tax deductions as tax incentives for homeownership.
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If you Plan on Buying a Second Home
Thanks to the new deduction limits, buying a second home may be difficult. After the $750,000 mortgage cap, the interest on your mortgage will no longer be deductible. However, this does not mean your entire mortgage is no longer deductible—just the difference. For example, if you are above your mortgage cap by $100,000, that amount will not be deductible.
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If You Plan on Renting Instead of Buying
Smart move! Why? The breakeven points (where buying is less costly compared to renting) have increased drastically. Especially for those who are upper-middle class or wealthy taxpayers. This means it may not be financially smart to get a home right now after all!
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If You Plan on Selling Your Home
The NAR predicts that home prices will slow, but probably will not drop, in 2018. Also, a taxpayer who sells a home may exclude up to $250,000 of gain from taxation ($500,000 if married or filing jointly) if that place of residence was used for at least two of the past five years. However, keep in mind that with this new act, you can no longer deduct moving expenses. Only active duty members of the armed forces can deduct.