When the Tax Cuts and Jobs Act was enacted in 2017 many people are still wondering exactly what it all means to them personally. What does it mean for their small business? What does it mean for their home deductions. The below overview should be a good summary of what to expect, and what is changing regarding home DEDUCTIONS: First time homebuyers in Colorado take note of the below, as this will come into play when you purchase a home this year.
- The OLD Mortgage Interest Tax Deduction --If you purchased a home prior to December 14th, 2017, you can deduct up to $1 million dollars in debt. Even if you chose to refinance, you would still be allowed the full $1 million dollar deduction. You were also allowed to deduct up to $100,000 in Home Equity Debt to improve your home.
- The NEW Mortgage Interest Tax Deduction--Up to $750,000 with no Home Equity Deduction. This will stay in effect until 2026, and then revert back to the old law where you can deduct up to $1 million dollars in interest, plus another $100,000 in Home Equity Line of Credit Debt
- The OLD (SALT) - State and Local Tax Deductions - All property taxes paid to state and local governments can be claimed as an itemized deduction.
- The NEW (SALT)- State and Local Tax Deductions - Deduction is limited to $10,000 for both individuals and married couples
- The OLD Standard Deduction - $6350 for single and married tax payers who file separately. Married couples filing jointly can claim twice as much , $12,700.
- The NEW Standard Deduction - Nearly doubles for single and married tax payers paying separately to $12,000 and $24,000 for married couples filing jointly.
Nearly 95% of all taxpayers take the Standard Deduction, and you cannot have both Standard and Itemized at the same time in the same year. In my opinion this is hitting people in areas like California and New York with very high property taxes right in the wallet. Living in Colorado, we are not seeing astronomical property taxes thankfully. The one part of the tax bill, which in my opinion, is a huge benefit to anyone buying a home is the below UNCHANGED CAPITAL GAINS TAX ON REAL ESTATE
- CAPITAL GAINS TAXES REMAIN UNCHANGED ON REAL ESTATE - If you sell a home that you have lived in for 2 of the last 5 years, you can exclude up to $250,000 of gain from taxation, and $500,000 if married, filing jointly. You will just have needed to use the home as a primary residence for that time. A proposed bill would have changed that to 5 of the last 8 years.
In closing I believe the Tax Cuts and Jobs Act in relation to Housing Deductions and Capital Gains is actually not so bad. If you are a first time home buyer in Colorado, and are looking for the lowest possible mortgage rates, I find you will be unaffected from this change in 2018. Rents are only continuing to rise in Denver, CO, and the surrounding cities, so talking to a local loan officer is definitely in your best interest.
About the Author
Brian Quigley has been in the Denver mortgage industry since 2003. Customer satisfaction has been his top priority while guiding clients through the home loan qualification process. He is proficient in all types of mortgage financing including FHA/VA, Conventional, USDA, Jumbo, Portfolio, 1031 Exchanges, Reverse Mortgages, Refinancing, Construction loans, and FHA 203K loans.