The National Association of Realtors (NAR) recently released an article summarizing how the new Tax Cuts and Jobs Acts Bill is going to affect current and prospective homeowners. The following information includes direct excerpts from this summary about a few of the major provisions and is not intended to be tax advice. Just a reminder that while we are pleased to provide you with a better understanding of this bill, we highly recommend consulting your tax adviser for additional guidance.
Tax Rate Reductions
- The new law provides generally lower tax rates for all individual tax filers. While this does not mean that every American will pay lower taxes under these changes, many will.
- The tax rate schedule retains seven brackets with slightly lower marginal rates of 10%, 12%, 22%, 24%, 32%, 35% and 37%.
See below for the Tax Brackets for Ordinary Income Under Current Law and the Tax Cuts and Jobs Act (2018 Tax Year) Single Filer.
See below for theTax Brackets for Ordinary Income Under Current Law and the Tax Cuts and Jobs Act (2018 Tax Year) Married Filing Jointly.
Exclusion of Gain on Sale of a Principal Residence
-The final bill retains current law – a significant victory that NAR achieved.
- It is important to note that the Senate-passed bill would have changed the amount of time a homeowner must live in their home to qualify for the capital gains exclusion from 2 out of the past 5 years to 5 out of the past 8 years. The House bill would have made this same change as well as phased out the exclusion for taxpayers with incomes above $250,000 single/$500,000 married.
Mortgage Interest Deduction
- The final bill reduces the limit on deductible mortgage debt to $750,000 for new loans taken out after December 14, 2017. Current loans of up to $1 million are grandfathered and are not subject to the new $750,000 cap. Neither limit is indexed for inflation.
- Homeowners may refinance debts existing on December 14, 2017 up to $1 million and still deduct the interest, so long as the new loan does not exceed the amount of the mortgage being refinanced.
- The final bill repeals the deduction for interest paid on home equity debt through December 31, 2025. Interest is still deductible on home equity loans (second mortgages) if the proceeds are used to substantially improve the residence.
Interest remains deductible on second homes, but subject to the $1 million/$750,000 limits.
Deduction for State and Local Taxes
- The final bill allows an itemized deduction of up to $10,000 for the total of state and local property taxes and income or sales taxes. This $10,000 limit applies for both single and married filers and is not indexed for inflation.
- The final bill also specifically precludes the deduction of 2018 state and local income taxes prepaid in 2017.
- The final bill provides a standard deduction of $12,000 for single individuals and $24,000 for joint returns. The new standard deduction is not indexed for inflation.
Click here to view the full NAR summary about what the new tax law means for homeowners and real estate professionals. Just a reminder that none of the information in the NAR report is intended as tax advice, so please consult your tax adviser for additional guidance.