Real estate column: Tax reform and real estate
With the recent tax changes taking affect in 2018, many are wondering what it means for them individually. To answer that, you should talk to your accountant, as all of us are in different situations. When it comes to how the new tax laws will effect you and your real estate sales and purchases, we will all fall under the same rules. With that said I wanted to share with you this month on the basics to help you prepare for your future.
What may be the largest change is the interest deduction you are allowed. Starting in 2018, homeowners can deduct the interest on mortgages only up to $750,000. In other words, if you were to have a mortgage balance of $800,000, you can only deduct the interest paid on the first $750,000. Previous to this change, homeowners could deduct the interest up to $1 million and the interest paid on home equity lines of credit up to $100,000. Likely more of an impact locally, is that the interest on home equity lines will no longer be available.
This new limit will apply only moving forward. If you already own an expensive home in the area and have a large mortgage, you’re in luck. Providing that you purchased this home of yours prior to Dec. 15, 2017, you will be grandfathered in to the $1 million cap. This is also only for your primary residence; no longer will you be able to deduct the interest paid on your loan for a vacation home, or qualifying boat, camper or RV.
With Colorado having some of the lowest property taxes in the entire country, this new law may not affect many of us either. For the first time, homeowners will now have a $10,000 cap on what they can deduct on their state and local taxes. Many people have tried to rush out to prepay taxes; however, before you do, check with your accountant, as it may not quite work so smoothly since the tax isn’t actually due.
Capital gains exclusions will be unaffected. Taxpayers will be able to continue to exclude $500,000 (married joint filers) and $250,000 for single filers in capital gains when they sell their home as long as they have lived in the home as their primary residence for two of the last five years. Their was discussion in early versions of the bill that made this timeline more restrictive, up to five years.
What does all this mean for our local real estate market? Well, if I could tell you the exact answer to future values, I wouldn’t be writing this article — rather, I’d be sitting on a boat somewhere in retirement.
Sean de Moraes is an agent with Roaring Fork Sotheby’s. He can be reached at firstname.lastname@example.org.