Marvin Gardens is looking carefully at how the Tax Cuts and Jobs Act is going to impact our clients. We are disappointed that the new laws affect the higher-priced coastal markets disproportionately to the rest of the country. The median price of a home in Berkeley is now over $1,200,000. Assuming a 20% down payment, a portion of both a buyer’s interest and their property taxes would not be tax deductible.
Mortgage Interest Deduction
- The limit on deductible mortgage debt was reduced from $1 million to $750,000 for new loans taken out after 12/14/17. Current loans of up to $1 million are grandfathered and are not subject to the new $750,000 cap.
- Homeowners may refinance mortgage debts existing on 12/14/17 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.
- Interest paid on home equity loans is only deductible 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
- If you itemize your tax return, you can claim up to $10,000 total for state and local property taxes and income or sales taxes. This $10,000 limit applies for both single and married filers.
- If you prepaid your 2018 state and local income taxes in 2017, you cannot deduct those taxes.
Capital Gains Exclusion
- Remains unchanged at $250,000 for single filers and $500,000 for joint returns if the house was lived in for two of the last five years.
Moving Expenses
- Moving expenses are no longer tax deductible, except for members of the Armed Forces.
Because the bill diminishes the tax benefits of homeownership, the National Association of Realtors (NAR) is now projecting slower growth in home prices of 1-3% in 2018.
However, some local markets, particularly in higher cost, higher tax areas such ours, might see price declines as a result of the legislation’s new restrictions on mortgage interest and state and local taxes per California Association of Realtors (CAR). In addition, the supply of available homes for sale will be slightly impacted, as homeowners may delay trading up/down to their next home. Overall, the California housing market is expected to see a decline of 0.3 percent in active listings in 2018.
We always recommend that you consult a tax professional about your own personal tax situation, but we are happy to talk with you on these matters from a realtor’s perspective. Give us a call.
Sources: California Association of Realtors and National Association of Realtors
