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Bend, OR Real Estate Podcast with Christine BrowningLearn all the tips tricks about the Central Oregon Real Estate Market from Christine Browning and Associates Author: Christine Browning
If you are looking to buy or sell a home, get all the information and the latest updates, tips, and tricks from Christine Browning - your professional Bend, Oregon Real Estate Agent. Language: en-us Genres: Education Contact email: Get it Feed URL: Get it iTunes ID: Get it |
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How is Real Estate Affected by the New Tax Law?
Thursday, 1 February, 2018
There are some pretty big changes coming with the upcoming tax law that recently passed. We asked Dan Parr, of Parr Accounting how those laws will affect real estate, and here's what he had to say. The 2017 Tax Cuts and Jobs Act was passed into law in late December and will be in place for 2018 and later income tax returns. How does this law affect the real estate market and taxpayers who own homes? One major change is that mortgage interest will only be deductible on the first $750,000 borrowed to purchase or construct a home. The former limit was $1M. This means that the tax benefit for a large mortgage will not be as impactful when filing tax returns in the future. Also -interest paid on HELOC loans will generally not be deductible under the new law. The old law allowed a taxpayer to deduct the interest on the first $100K of a HELOC loan, no matter how the funds were used. State and real estate taxes - most homeowners itemize their deduction each year. Beginning in 2018, the total of state income taxes paid and real estate taxes paid on the primary residence will be capped at $10,000. This amount was previously unlimited, but did lead to Alternative Minimum Tax for many higher income taxpayers. Lastly, the standard deduction allowed by the IRS will almost double-up to $12,000 for individuals and $24,000 for married taxpayers. Combined with the tax limit mentioned above, MANY more taxpayers will be claiming the standard deduction in 2018 and later years. "Just how does this affect taxpayers who own homes?" Homeowners used to be able to calculate the “after tax' cost of a mortgage payment and compare this to the rent paid on a similar home. In a 25% federal tax bracket and 9% Oregon tax bracket, a $2500 mortgage payment (including principal, interest, tax and insurance), was equivalent to paying rent of roughly $1700. This calculation will not longer be valid due to the tax limit and larger standard deduction. This does not mean that home ownership will not longer be a tremendous long-term investment. It will become more difficult to calculate the current benefits. Taxpayers who have rental property or other investment property may want to “trace' the interest paid on their primary residence to the purchase of these other investments in order to get better tax benefit in future years. Note that even though many taxpayers will not itemize for federal tax purposes due to the increased standard deduction, they will still have to save all the similar items used in prior years because the Oregon standard deduction will remain at roughly $4,000 for married taxpayers. The IRS did not change the primary residence exclusion rules - married taxpayers can still exclude up to $500,000 of gain ($250,000 for single taxpayers) on the sale of their primary residence if they have lived in the home as their primary residence two of the previous five years. Congress was considering changing this to five of the previous eight years. Section 1031 as it relates to real estate transactions was not changed in the new law. Taxpayers can defer the gain on the sale of investment real estate as long as they spend the net proceeds (sales price less closing costs) on the purchase of replacement real estate within 180 days. If you have any questions about how these changes affect you, reach out to Dan@ParrAccounting.com. You can also visit his website, here. I you have any questions about the current real estate market and how prices will move in the coming months, give me a call. I'm here to help!
