3 Tax Law Changes to Know


What were the major changes made to the new tax code? I’ll break them down right here.

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As you’ve more than likely heard by now, a new tax code was placed into law at the end of 2017. But what’s new about this tax code? What impact will it have on the real estate market?

There were three major changes proposed to the tax code:

1. Changing the requirements for the exclusion of gain on the sale of a principal residence. The original proposal was that owners would need to live in their house for at least five of the last eight years to claim this exemption, but the new tax code ended up foregoing this change; owners still only need to have lived in their house for at least two of the last five years. Because the change was avoided, this will have no impact on the market.

2. The reduction on the limit of the mortgage interest deduction (MID). Originally, the proposal was to reduce the limit on the MID from $1 million to $500,000, but the limit on deductible debt was actually reduced to $750,000 for loans taken out after December 14, 2017. Assuming a 20% down payment, this will only impact buyers purchasing homes between $938,000 and $1,250,000.

The elimination of SALT deductions would have been tremendously detrimental to real estate had it passed.

There are two opposing opinions about how much this change will affect the market as a whole. Calculated Risk’s Bill McBride says that it will have very little impact on the housing market. However, Capital Economics suggests that “the impact on expensive homes could be detrimental, with a limit on the MID raising taxes for those that itemize.” 30% of all Americans itemize, so those who don’t will receive a big tax break.

3. The elimination of the state and local tax deduction (SALT), which includes property taxes. This would have been tremendously detrimental to real estate had it passed. Instead, the new tax code allows an itemized deduction of up to $10,000 for SALT, so, while it wasn’t eliminated completely, it was still limited.

Bill McBride says, “SALT will have an impact on housing in some areas. Some people might choose to live in one state over another based on taxation. This could impact demand in certain states.”

So what does all of this mean to you? To understand how the Tax Cuts and Jobs Act will affect you personally, be sure to check with your accountant or tax advisor.

Now that you have a better understanding of how these changes might impact housing, if you have any questions about buying or selling your home, consult with a local real estate expert like the Mitchell Group to get the answers you need and deserve.