How will the 2017 Tax Bill Affect Your Real Estate Investment?

How will the 2017 Tax Bill Affect Your Real Estate Investment? Image result for real estate investment

Historically, investing in Real Estate is a gateway to personal wealth and security. With the ability to deduct mortgage interest and real estate taxes, owning a property has been a huge benefit for many hardworking property owners. How does the new tax bill really affect you and your real estate?

In the media and online we are bombarded with all sorts of myths, benefits, and shortfalls of the 2017 tax reform.  It’s important to know the facts.

Here are six facts about the 2018 Federal Tax Guidelines that you need to know as a property owner.

1 – Mortgage Interest Deduction

Will I still be able to deduct the interest on my mortgage?

According to the previous tax code, a home buyer is able to deduct the interest paid on a loan of up to one million dollars on your primary or a secondary home.  This loan amount has been reduced to $750,000.  If you purchased your home BEFORE December 15,, 2017 there will be no change.   The old limit will also stand if you were already under contract and scheduled to close on your home by January 1, 2018.  Also, important to note is that if you refinance the compromise bill recognizes that you already own the property and so the old limit will still apply.

Here is a look at who this would hurt…

Your mortgage will be over $750,000.  That translates into a buyer of a one million dollar property who is putting 20% down or a buyer of a house over one million.  In Staten Island, based on last year’s sales we estimate that this would affect roughly 10% of buyers.  In our community, the median sale price last year was $525,000.

2 – Home Equity Loans

Perhaps an issue more salient with middle-class homeowners is the elimination of the home equity deduction.  Interest on home equity debt will no longer be claimed.  However, HELOC interest is still deductible if proceeds are used for “acquisition indebtedness” (to build or improve a primary residence).

3 – Property Tax Deductions

Property tax deductions have become limited.  In the past homeowners claimed those in their entirety.  This means homeowners may deduct up to $10,000 for a combination of property tax and state and local income taxes.

In the Staten Island community, this may have less of an impact as most of our residents pay under $10,000 in taxes.  This could, of course, become an issue down the road as taxes rise.

4 – Relocation Expenses

This was not a well-known deduction as you did not need to itemize deductions to get the benefit.  My daughter, for instance, saved about $500 on her taxes when she moved to South Carolina.  Good thing she moved in 2016!

Moving expenses are now only deductible for active duty members of the armed forces.

5 – Capital Gains

Exclusion amounts remain unchanged; $500,000 (or $250,000 for single filers).  Owned and used rules for your primary residence remain unchanged; must reside in the home for 2 of past 5 years.

6 – The Standard Deduction

Some or all of the loss of deductions for Real Estate related transactions may be recaptured by virtue of the increase in the standard deduction.  Meaning, you might not need to itemize your deductions in order to get the same tax savings you would have received under the old tax code.

As always, you should consult with your own tax advisor to see how the tax bill will affect your particular circumstance.

Resource: 

The Tax Cuts and Jobs Act – What it Means for Homeowners and Real Estate Professionals https://www.nar.realtor/tax-reform/the-tax-cuts-and-jobs-act-what-it-means-for-homeowners-and-real-estate-professionals