Federal Tax Law Changes: Summary for Homeowners
We’ve had a number of buyers and sellers ask us how they will be affected by the tax reforms. As real estate professionals, we are not able to provide clients with tax or investment advice. Thus, the information provided below should not be used for these purposes. Please consult your tax advisor. The following is a summary of information gleaned from various publically available resources.
Congress approved significant tax reforms on December 22, 2017 as part of the Tax Cuts and Jobs Act (TCJA). You can read the full regulation text here. The IRS continues to provide clarifying memorandums on aspects of the regulation here. The regulation applies to taxable years between 2018 through 2025 and affects corporate and individual tax structures.
The regulation provides for a reduction in income taxes, doubles the standard deduction, eliminates personal exemptions, limits property tax deductions, caps mortgage interest deductions, and increase the estate tax exemption value. We provide a summary of the changes related to solely to homeownership below. You can find an overview of all of the individual tax reforms that were enacted, related to homeownership and beyond, in this article and this article.
Key Elements of the Tax Reform Act Related to Homeownership
- Standard Deduction: The standard deduction has increased to $12,000 for single filers and $24,000 for joint filers. This equates to a portion of the population no longer needing to itemize deductions.
- Deduction of Mortgage Interest: A new limit or cap is placed on the amount of mortgage debt that can be deducted. Interest can now be deducted for up to the first $750,000 of the loan. The previous cap was $1,000,000. This change affects loans issued after December 15, 2017. Note that folks can refinance mortgage debts that existed before Dec 15th and deduct interest on loan amounts up to the previous $1,000,000 cap under the condition that the new loan does not exceed the amount refinanced.
- Deduction of Home Equity Loans and Lines of Credit Interest: Interest on these loan instruments can no longer be deducted when funds are utilized for purposes other than home improvement. Previously, any and all interest on home equity loans or lines of credit, up to $100,000 in loan amount, was eligible. The IRS provides clarity on the caveats around the deduction requirements here. Basically, if HELOC funds are used to build or substantially improve the home then interest may be deducted.
- Taxes (both State and Local): There is now a $10,000 cap on the maximum amount of state and local tax that can be deducted. Filers can claim a combination of property tax plus either income or sales tax (same as before) up to the $10,000 amount (this is the new part).
- Estate Tax Exemption: The tax exemption on estate value was doubled in 2018 from previous the value of $5.6 million to $11.2 million and will continue to be adjusted for inflation albeit using the new “chained CPI” or C-CPI rate table.
- Moving Expenses: Folks can no longer deduct moving expenses unless they are members of the military.