How Will The New Tax Changes Impact Real Estate?
How Will The New Tax Changes Impact Cincinnati Real Estate?
The recent changes to the tax law will have an impact on Greater Cincinnati, Ohio and Northern Kentucky real estate and real estate in other areas as well. The law makes changes to the tax deductions homeowners and property investors can use. This article explores what the changes are and how they may impact real estate owners in general. As this covers the changes more generally it should not be relied upon for tax advice. Everyone’s tax situation when owning a home is different and for specific tax information related to your situation you should speak with a local tax professional for guidance on what works best for you.
Changes In Mortgage Interest Deduction
Prior to the change in the tax laws married homeowners filing jointly could deduct mortgage interest for mortgages up to one million dollars ($1,000,000.00) in value. A non-married individual or married filing separately could only claim mortgage interest deductions on a mortgage amount of no more than five hundred thousand dollars ($500,000.00). Any interest amounts paid above those limits were not deductible.
Under the new law the mortgage limit is now seven hundred fifty thousand dollars ($750,000.00) for married homeowners filing jointly and three hundred seventy five thousand dollars ($375,000.00) for single filers. Therefore if a married couple have a total mortgage amount in excess of $750,000 they can only deduct interest that goes up to the $750,000 limit. Any interest that is paid due to having a mortgage in excess of that amount would not be deductible on federal income taxes. This change in mortgage deduction limits applies to any house purchased on or after December 15, 2017. For homes purchased prior to that date the $1,000,000/$500,000 mortgage deduction limit still applies.
Home Equity Loan Deductions
Prior to the new tax law changes married homeowners could deduct interest on home equity loan at $100,000 or less from their taxes. Single homeowners could deduct based on home equity loans at $50,000 or less. Under the new tax law all home equity loan interest is non-deductible. There is no grandfathering for the interest deduction either. Regardless of when the home equity loan was initially taken, starting with the 2018 tax year home equity loan interest will no longer be deductible. Those with outstanding home equity loans may want to look into paying off the loan or refinancing the house mortgage in order to incorporate the home equity loan into a deductible mortgage if there is sufficient home equity to do so.
Home equity loans primary function was for homeowners to borrow easily to make improvements on a home by using the value of the home to make a loan against. Overtime homeowners got creative with home equity loans and used them to purchase vehicles, vacations and more and the interest was tax deductible as a result regardless of what the money was used for. With the removal of home equity loan tax deduction there may be reduced incentive to use a home equity loan. Although with the interest rates on home equity loan being what they currently are it may make more sense to borrow from home equity versus other borrowing options that have much higher interest rates.
Property Tax Deduction Changes
Prior to the recent tax change there was no limit on the amount of property tax, income and sales tax (state and local taxes also referred to as SALT) that homeowners could use to deduct on federal taxes. Under the new tax law there is a limit of $10,000 SALT and local property taxes that homeowners can use to deduct under federal taxes. Therefore homeowners with local sales, income and property taxes in excess of $10,000 may end up owing more in taxes than in previous years. The standard deductions have risen to $12,000 for single filers and $24,000 for married filing jointly. The increased standard deduction may help offset the decrease in the amount of SALT and property tax deductions allowed in the new tax plan for some filers.
Home Sellers Tax Exemption
The one real estate related thing that did not change is the tax exemption on gains from the sale of an owner occupied home. The current law which stays in effect allows married homeowners to exempt up to $500,000.00 ($250,000.00 for single filers) in gains from the sale of a home on their taxes if they lived in the home as their primary residence for at least two of the last five years. There was talk of increasing the time frame for living in the home to five of the last eight years. That change was not made and as a result the rules stay the same for this area, homeowners can still claim as tax exempt any gains of up to $500,000.00 on the sale of their home.
Deductions For Moving
In the past and based on some detailed criteria homeowners who sold their home and moved for a job a certain distance could deduct the moving expenses. The new tax law does away with that deduction for all but active duty members of the military. Any moving expenses incurred due to moving during the year 2018 and after are no longer deductible for a majority of taxpayers.
Permanency Of The Tax Changes
In passing the tax law changes Congress did include some expiration dates for certain provisions. For the Mortgage Interest Deduction the limits revert back to $1,000,000.00 ($500,000 single filer) in 2025 unless extended. The home equity loan interest deduction will also be allowed again in 2025 unless extended by Congress. Additionally the SALT, property tax caps as well as the increase in standard deductions will also revert back to what was used during the 2017 tax year.
What Sort Of Effect Will The Tax Law Have On Real Estate?
Property values may be put into a downward trend with these new tax laws. While those with the money will buy a house regardless of the tax implications, there are those who might have been considering selling and trading up into a bigger home who may now opt to stay put due to the new tax changes. Cincinnati neighborhoods with homes in the price range of $750,000.00 could see slower gains overall as the tax changes discourage the purchasing of higher priced homes. Many of the Greater Cincinnati and Northern Kentucky neighborhoods have home prices below the $750,000 threshold and therefore the mortgage interest deduction limits will have very little impact there.
The tax changes have been enacted by Congress and signed into law by the President which means they are in effect for the 2018 tax year. Those who believe their taxes will be impacted by the changes should consult with their tax professionals in order to adjust their current tax payments or withholding. Waiting until the last few days of 2018 to figure out more taxes was owed than was paid is a plan for penalties paid to the IRS.
- Tax Plan Changes Examined at New York Times
- The Tax Plan Impact On Housing Costs at Forbes
- Ohio Property Tax Reduction Tips by Chris Finney
About the author: The above article “How Will The New Tax Changes Impact Real Estate?” was provided by Luxury Real Estate Specialist Paul Sian. Paul can be reached at paul@CinciNKYRealEstate.com or by phone at 513-560-8002. If you’re thinking of selling or buying your investment or commercial business property I would love to share my marketing knowledge and expertise to help you. Contact me today!
I work in the following Greater Cincinnati, OH and Northern KY areas: Alexandria, Amberly, Amelia, Anderson Township, Cincinnati, Batavia, Blue Ash, Covington, Edgewood, Florence, Fort Mitchell, Fort Thomas, Hebron, Hyde Park, Indian Hill, Kenwood, Madeira, Mariemont, Milford, Montgomery, Mt. Washington, Newport, Newtown, Norwood, Taylor Mill, Terrace Park, Union Township, and Villa Hills.