On December 22, 2017, the Tax Cuts and Jobs Act was signed into law by President Trump. The law contains many significant changes for a large array of different tax issues. The new tax law is valid for all tax years after December 31, 2017. One of the areas that was extensively effected by the changes was that of real estate.
The law notably makes changes to the mortgage interest deduction, which may homeowners use every year. The bill changes the limit to $750,000 for any loan that is taken out after December 14, 2017. Loans that were already existed up to the cap of one million dollars are grandfathered in and are not subject to the $750,000 limit. If a homeowner refinances a mortgage debt that is already in existence as of December 14, 2017, the homeowner can still deduct the interest as long as the new loan is below the amount of the mortgage being refinanced. This is limited to loans in the amount of one million dollars. Interest on home equity loans is deductible only if the proceeds are used to substantially improve the residence that the loan is taken against.
The bill allows a deduction of up to $10,000 for state and local property tax, income tax, or sale tax. This amount remains the same regardless of whether the filers are married or single. The bill does specifically exclude deducting 2018 state and local income taxes that were pre-paid in 2017. The bill also repealed the ability to deduct moving expenses, unless the filer is a member of the United States Armed Forces.
One area that did not see a change is that of capital gains tax on the sale of a person’s principal residence. Although some versions of the new bill suggested that the amount of time a homeowner must reside in the residence should be increased to five out of the last eight years in order to qualify for the exemption, the law ultimately remained the same at two out of the last five years.
Commercial real estate also was impacted by the new law. For example, the new bill repeals the ten percent tax rehabilitation tax credit for buildings built before 1936. The bill also requires a three year holding period before the property can qualify for capital gains treatment.
Real estate and taxes interact in important ways and you need an experienced attorney to understand how these changes will impact you. Call us today at 720-420-1777 to talk about your assets and how we can help you achieve your goals.