GOP Tax Reform Bill Impact for Homeowners, Buyers, and Sellers

The new GOP tax reform bill signed into law on December 22nd has, as anticipated, raised a lot of confusion among homeowners, buyers, and sellers. The following infographic outlines changes that will come into fruition starting in 2018.

GOP Tax Reform Bill Homeowners Infographic

SALT Deductions

SALT deductions allow taxpayers to deduct state, local, and property taxes.
Previous: taxpayers had the option of deducting real estate and income tax, or sales tax paid to state and local governments.
New: the deduction for all state and local taxes (including income tax, property tax, and sales tax) cannot exceed $10,000. SALT deductions for schedule C, E, and F are not capped.

Mortgage Interest Deductions

Mortgage interest deductions allow homeowners to deduct the amount they pay in mortgage interest from their taxable income.
Previous: interest on the first $1 million of mortgage debt was deductible.
New: for mortgages taken out after December 15, 2017, only the interest on the first $750K of mortgage debt is deductible. For mortgages taken out before December 15, 2017, the limit remains at $1 million. This change is in effect through 2025.

Home Equity Loan Deductions

Home equity loans allow the borrower to use the equity of his or her home as collateral.
Previous: homeowners could deduct up to $100K of the interest gained from home equity loans.
New: interest on home equity will no longer be deductible. This also applies to home equity loans taken out before December 15, 2017.

Capital Gains Exclusion

Capital gains refer to the profit from the sale of a property or investment.
Previous: owner must have lived in property for at least two of the five years preceding the sale, exclude up to $250K for single fliers ($500K for joint fliers), and can apply this exclusion to one sale every two years.
New: capital gains exclusion remains unchanged.

Moving Expense Deductions

Moving expenses refer to costs incurred as a result of relocating to start a new job or a transfer to a new location.
Previous: moving expenses can be deducted as long as you meet the three requirements set by the IRS. The move must be related to the start of work, meet the distance test and time test.
New: moving expenses can no longer be deducted unless you are an active member of the military. Expenses can only be deducted if it’s due to a permanent change of station.

Casualty Loss Deductions

Casualty loss refers to financial loss or loss of property caused by a sudden, unexpected event.
Previous: According to the IRA, causes of casualty loss included car accidents, natural disasters, unintentional fire incidents, and vandalism.
New: casualty losses can no longer be deducted unless it occurred in a disaster declared by the president. In 2017, that would have included disasters that occurred in Puerto Rico and Texas due to hurricane Maria and hurricane Harvey.

Estate Tax Deduction

Estate tax is tax imposed on assets transferred from a deceased to his or her heirs/beneficiaries.
Previous: lifetime exemption was $5.6 million for individuals, $11.2 million for married couples
New: lifetime exemption doubles to $11.2 million for individuals, $22.4 million for married couples.