For many families, real estate and the family home are some of the most important investments they will make. Many people rely on investing money in their homes as a safe investment for their future and that of their family. In December 2017, Congress passed the Tax Cuts and Jobs Act which made sweeping changes to many areas of the federal tax code, including areas that impact real estate. It is important for you and your family to have a grasp on the way the law is changing to make sure that your future and your investment is protected.
Most homeowners use the mortgage interest tax deduction when preparing their annual federal taxes. Under the new tax law, any person who took out a mortgage under $750,000 for the purpose of buying or improving a home may still deduct the mortgage interest on their taxes. Under the previous law, the cap was set at one million dollars. The new law also eliminates the ability to deduct equity interest debt up to $100,000, which was the previous state of affairs, beginning in 2018. The mortgage interest deduction cap is only applicable to mortgages taken out after December 14, 2017. This could mean that in the future, those people who are likely to purchase expensive homes will be more hesitant to move or to purchase a home for which they will need a mortgage over $750,000.
State and local tax deductions for property are also impacted. Under the previous law, all property taxes that a homeowner paid to local and state entities could be used as an itemized deduction. Under the new tax bill, both local and state taxes are bundled together, and there is a limit of $10,000 for the deduction. This limit applies to both individuals and married couples filing jointly.
The new tax bill does retain the current exclusion on capital gains tax when selling a principal residence. The current law requires that a person must have lived in a residence for two out of the last five years to be eligible for this exclusion. Although the Senate would have increased this to five out of the last eight years, the law remained the same.
We have helped many clients understand their rights and responsibilities with their assets and how to meet their future goals. Contact us today at 651-464-7292 to talk about your assets and what we can do to help you.