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How Tax Reform Affects Homeowners
New tax legislation was signed into law at the end of 2017, and it included some significant changes for homeowners. These changes took effect in 2018 and do not influence your 2017 taxes. Here’s a brief overview of this year’s tax changes and how they may affect you.
The amount of mortgage interest you can deduct has decreased.
Under the old law taxpayers could deduct the interest they paid on a mortgage of up to $1 million. The new law reduces the mortgage interest deduction from $1 million to $750,000.
These changes do not affect mortgages taken out before December 15, 2017.
The home equity loan deduction has been changed.
The IRS states that despite newly-enacted restrictions on home mortgages, taxpayers can often still deduct interest on a home equity loan, home equity line of credit (HELOC) or second mortgage, regardless of how the loan is labeled. The Tax Cuts and Jobs Act of 2017, enacted December 22, suspends the deduction for interest paid on home equity loans and lines of credit unless they are used to buy, build or substantially improve the taxpayer’s home that secures the loan. The deduction would be suspended from 2018 until 2026.
The property tax deduction is capped at $10,000.
Previously taxpayers could deduct all the state, local and foreign real estate taxes they paid with no cap on the amount. The new law limits the deduction for all state and local taxes – including income, sales, real estate, and personal property taxes – to $10,000.
The casualty loss deduction has been repealed.
Previously, homeowners could deduct unreimbursed casualty, disaster and theft losses on their property. That deduction has been repealed, with an exception for losses on property located in a federally declared disaster area – an important victory!
The capital gains exclusion remains unchanged.
Homeowners can continue to exclude up to $500,000 for joint filers or $250,000 for single filers for capital gains when selling their primary residence as long as they have lived in the home for two of the past five years. An earlier proposal would have increased that requirement to five out of the last eight years and phase out the exclusion for high-income households, but it was struck down.
Find out more about 2018 tax reform.
How does tax reform affect your plans for buying or selling a home?
The changes in real estate related taxes may change your strategy. Contact one of our agents to go over your options and answer any questions you may have.
Seen on: https://plus.google.com/u/1/b/110779932291220771362/+WindermereRedmondRealEstateEastInc/posts/8B9hRzabb9f
2018 Housing Forecast: Where are we headed?
What lies ahead for the local housing market in 2018? We sat down with Windermere Chief Economist Matthew Gardner to get his thoughts. Here are some highlights:
Home prices will continue to increase, but at a slower pace
The strong local economy, high demand and very low inventory will continue to boost home values in 2018, according to Gardner. However, he believes that the double-digit growth of 2017 will moderate, and predicts home prices in King County will rise by 8.5% in the new year.
Mortgage interest rates will rise slightly.
Gardner admits that interest rates continue to baffle forecasters. The rise that many economists have predicted the past few years has yet to materialize. His forecast for 2018 sees interest rates increasing modestly to an average of 4.4% for a conventional 30-year fixed-rate mortgage.
More Millennials will enter the housing market.
Despite the relatively high cost of homes in our region, Gardner expects more Millennials to buy homes in 2018. They are getting older and more established in their careers, enabling them to save more money for a down payment. Many are also having children and are looking for a place to raise their family.
The tax reform bill will have a limited effect on our housing market.
The recent changes to the income tax structure will have an impact on homeowners, but Gardner does not believe that impact will be significant here.
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The mortgage interest rate deduction will be capped at $750,000 – down from $1,000,000. But according to Gardner, just 4% of the mortgages in King County exceeded $750,000 in 2017. Most buyers of more expensive homes have been making larger down payments, or buying homes for cash.
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Since the $1,000,000 mortgage deduction cap is grandfathered in for those who have already purchased a home, some homeowners may opt to stay put rather than move. That could result in fewer homes being placed on the market.
- The tax bill eliminates the deduction for interest on home equity loans. This is bound to slow down the trend of homeowners choosing to remodel their home rather than trying to find a new home our inventory-deprived market.
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Bottom Line
The increase in home prices may moderate, but inventory will still be very tight. 2018 is on track to be a strong seller’s market.
This post originally appeared on the Windermere Eastside Blog.
7 Reasons Owning is Better (and Smarter) than Renting
BUYING IS BETTER
With interest rates still at all-time lows, it might be time to consider buying a home. We can show you what homes are selling for in the area(s) you’re interested in and connect you with a reputable mortgage professional who can help you determine how much you can afford to pay.
Please don’t hesitate to contact Windermere Redmond with these or other real estate needs. 425-883-0088
