As an investor, you’re probably wondering how the tax bill that passed at the end of 2017 affects you. Many provisions were added, taken away or altered, which directly impact the nation’s real estate market. Our team at Diversified Investment Strategies is here to fill you in on what you should know!
1. 1031 Exchanges remain the same for real estate investors. The tax bill completely repealed personal property exchanges. A 1031 exchange can no longer be used for personal property, but can still be used for real estate assets. It has been retitled, “Exchange of real property held for productive use or investment.” Real estate exchanges are subject to the same rules and regulations as under previous law.
2. Standard deductions double. The new tax code doubles the standard deduction for individuals to $12,000 and $24,000 for joint filers. If you have few itemized deductions, this means you’ll get twice as much exempt in your federal taxation if you take a standard deduction. Income tax rates have also been reduced, starting in 2018. This is great news for anyone trying to save up a down payment on a home.
3. State and local tax deductions are capped at $10,000. The new law caps deductions, which includes any combination of property, income and sales taxes, at $10,000. Therefore, if you pay property taxes, especially along the coast where taxes may be higher, this will have an impact on your final tax bill.
4. The cap on mortgage interest deduction drops to $750,000. This only applies to loans taken out after Dec. 14, 2017. Loans taken before this date can still deduct interest on mortgage debt up to $1 million. Homeowners can still refinance on mortgage debts that existed before Dec. 14 up to $1 million if the new loan does not exceed the amount refinanced. The interest on a home-equity loan can also still be deducted as long as the proceeds are used to substantially improve the home.
5. Homeowners can exclude up to $500,000 for joint filers or $250,000 for single filers for capital gains when selling a primary home if the homeowner has resided in the home for two of the past five years. An earlier proposal of the bill would have increased this requirement from five out of the last eight years, but this was removed from the final bill. Therefore, capital gains exclusions remain the same.
More changes include the elimination of the deduction of moving expenses except for military members, the doubling of the estate tax exemption to $11.2 million, and the retaining of the 4 percent Low-Income Housing Tax Credit, which funds about a third of affordable housing construction.
As you can see, there is good news and bad news for real estate investors and homeowners. If you have more questions regarding these changes, please don’t hesitate to reach out to our Diversified Investment Strategies team! We are here to answer your questions or point you in the right direction. We can also help you buy, sell or invest, and we can assist with 1031 exchanges. We’re here for you in 2018!
Bryan Hakola
Diversified Investment Strategies
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