One of the biggest challenges in real estate (and most industries) is that things rarely stay the same. Change is good, but I can also be confusing! Did anyone else have a hard time deciphering the tax law changes at the end of 2018 when they were revealed? Let’s be honest – tax laws are already (and likely intentionally!) about as convoluted as it gets, but they are still important and certainly affect all of us – particularly in the real estate realm.
Now that it’s tax season for the first time since the new laws have had a full year to take effect, we wanted to remind you of a few keys points that could very well play into the decisions you make for real estate! Please note, I am in no way – nor is anyone on our team – a CPA (we have great references if you need one!), but as your real estate professionals of choice, we are here to provide you with information to help aid your decisions…
First up are general changes that effect tax bracket and standardized deductions:
- Changes in 2018 to tax brackets and marginal rates mean most people will be paying fewer taxes.
- Most individual taxpayers saw a slight bump in their take-home pay when the new tax law was implemented. This is because of the tax bracket shifts and made buying a home more of a possibility since many experienced an increase.
- Standardized deductions doubled to $12,000 for individual taxpayers and heads of household and $24,000 for married couples filing jointly. Due to the increase in standardized deductions, there’s less incentive for taxpayers to itemize their returns.
- There are still many benefits to home ownership, including equity build up, pride of ownership, tax advantages, a hedge against inflation, stable housing costs, leverage, stability, and the ability to access home equity loans.
Next – and even more real estate specific – are Mortgage Interest Deductions for first homes, second homes, HELOCs, and Home Equity Loans
- Prior to 2018, homeowners could deduct mortgage interest on up to $1,000,000 in debt, and those who owned a home with that debt level prior to December 15, 2017 were grandfathered in. For homes purchased after that date, mortgage interest may be deducted on up to $750,000 in debt. Note: Only 6% of households have homes with $500,000 or more debt.
- Interest on home equity loans and HELOCs are deductible, but the funds must be used for home improvements and additions and no other purpose (AKA, no buying a car or paying off other debt).
- Mortgage interest paid on a second home is still deductible, but it’s subject to the mortgage debt limit of $750,000 total (primary home + second home debt can’t exceed $750,000).
- And a common question… Can someone get a home equity loan on the primary home and use it to purchase a second home? Yes, but the interest won’t be deductible, per the IRS. That’s because the loan wasn’t used to improve or add to an existing building.
As you can see, may of the changes put more limits on real estate deductions, but overall, this is good news for consumers and the market! Need more advice? Call us at 678-921-1470 or visit us at thepeterscompany.com!
Written by Jennie Moshure