How does the new tax law impact you when it comes to real estate? I’ll cover a few important changes today.
Looking to sell a home in Southern California?
Looking to buy a home in Southern California?
What has changed in the tax law that can affect you as far as real estate?
There are a lot of changes happening. This is one of the biggest overhauls of the tax code, so I’m just going to focus on the changes that will impact real estate.
A lot of people have heard that the standard deduction has changed. For single people, it’s now $12,000; for a married couple, it’s $24,000.
That can affect people as far as real estate goes because depending on your other deductions, you may not need to itemize deductions anymore. It depends on how many deductions you have.
The other thing that has changed is the mortgage interest deduction. There is now a cap of $750,000. This is only for new mortgages. If you already have a mortgage over that amount, it won’t change. That is only for new mortgages coming up in 2018.
If you do have a second home and write-off the mortgage interest, the good news is that that write off hasn’t changed. The cap does remain at $1 million if you already have your second home. If you are buying a new second home, the cap remains at $750,000.
Home equity lines of credit no longer count as deductions, which is a huge change. The only exception is if you are making a major improvement to the home.
The mortgage interest deduction now has a cap of $750,000.
What happened to capital gains tax? They were talking about requiring you to live in the home for five out of the last eight years. The good news is that they left this rule the same. If you live in a home for two years, you can still take a primary residence exemption if you move after those two years.
If you’ve rented out a property, you want to make sure you plan on selling it before three years have passed so you don’t lose that deduction, which is $250,000 for a single person or $500,000 for a married couple.
Another thing that has changed is that corporate taxes have been lowered. If you own investment properties, you may want to talk to your accountant if you are currently writing off your mortgage interest or other expenses as a schedule C item on your tax returns. See if it is worthwhile to put that property in an LLC or S Corp. See what makes sense for you. You may get more write-offs if you change the status of how you are holding that property.
There is now a cap on your state and local property tax write-offs at $10,000. If you are taking more deductions than that, you are not going to be able to take more than $10,000 under this new tax bill.
Finally, moving expense deductions have been eliminated for everyone but military personnel. If you are going to be moved for work and they’re not giving you a relocation package, it’s important to know that the moving expense deduction has gone away.
If you have any other questions about this or other real estate topics, just give me a call or send me an email. I would be happy to help you.
