With much fanfare, the Administration proposed and Congress passed the first major tax reform changes since the Reagan era. In this sweeping new tax code, much of the changes related directly to real estate and mortgage transactions. Let’s take a quick look at some of the major reforms to the tax code that took effect as of January 1, 2018.
2018 Tax Reforms: A Quick Look
Mortgage Interest Deduction- This deduction, one of the few remaining federal income tax deductions to make it through various changes over the years, had some fearing the deduction would disappear. Yet this popular deduction remained although not completely unscathed. Prior to this year, borrowers could deduct mortgage interest from taxable income capped at $1,000,000. The new limit is at $750,000. The mortgage interest tax deduction for second homes was capped at $1,000,000 but going forward is reduced to $750,000.
SALT- State and Local Tax deductions can be written off for tax years leading up to and including 2017 but for 2018 and going forward, income tax filers can only deduct these deductions up to $10,000.
Cap Gains Exemption- This provision made it through with no tax reform. Currently, when someone sells their home and receives $250,000 in capital gains and $500,000 if married, those gains are income tax free. Only those gains greater than these amounts are taxed at the capital gains rate.
Personal and Standard Deduction- Beginning tax year 2018, the personal deduction will be eliminated but the standard deduction will about double from $6,350 for individuals to $12,000 and from $12,700 for married couples to $24,000.
Equity Loans- Interest on equity loans was also tax deductible leading up to 2018 but for 2018 and future years, interest on equity loans cannot be deducted unless the loan was used to improve the subject property.
HELOCs- A home equity line of credit, or HELOC also experienced major changes. In fact, mortgage interest on HELOCs will no longer be eligible for a tax deduction as of January 1 of this year.
Tax Reform Takeaway
Please note these are standard guideline changes for 2018 and not to be considered tax advice. Please consult with your tax advisor regarding tax deductibility for your situation. Any questions regarding available loan programs as it relates to these new changes, call me directly.