Tax Law and how they will affect homeowners and new home buyers is definitely a hot topic right now. The new tax laws provide a perfect example of real-life issues that touch on two of our
major practice areas here at Principal Law: Real Estate and Business Law.
As 2018 moves through winter into spring, look for a new series of blog articles that give you practical data on legal, real estate, and business aspects of life in the 21st century. You have probably heard the term “News You Can Use.” And that is what we hope to bring you. That is what our new blog is committed to deliver, as we view the issues that touch our public and private lives. That’s why we named our blog “news.”
Therefore, this blog strives to bring you the latest information on the hottest legal topics. These are the topics that touch your lives and your family’s lives. To Principal Law, the entity of the law is not a big old dusty book on a high shelf. It is a living, breathing, vital presence that affects every facet of our reality.
New Bill On Taxes Ignites High Anxiety for Potential Homeowners
Some potential homeowners are now questioning the American dream of homeownership. They call Principal Law with questions about the concept of homeownership. Questions come at a time when the government is reducing the tax benefits of homeownership. Let’s look at some of the major changes in laws. We will also look at what their impact might be if you choose to buy a home this year.
Tax Situation Number One: Interest Deduction, and “Location, Location, Location”
Under the old rules, new homebuyers could deduct interest on the first 1 million dollars of mortgage debt. Some people believe that no interest deduction will be available under the new taxation rule. This is far from true. With the new law, “new homebuyers would now only be able to deduct interest on the first $750,000 of mortgage debt on a newly-purchased home.” Let’s look at a couple of main points in regard to this new tax law.
In practical words, your home-buying life will not be affected by this big change unless your home mortgage goes over the $750,000.00 cap.
1. However, the impact is much greater in coastal metropolitan areas like New York City and Los Angeles where hot markets have escalated home prices.
2. So, how much this new law will affect your dream of homeownership depends largely on where you must live. “For instance, in New York City, nearly 64% of mortgages on homes sold this year were over $750,000, according to data from ATTOM Data Solutions.”
Tax Situation Number Two: New Limit on Property Tax Deduction
In the US, state and local taxes vary widely from one locale to another. Thus, if you live in a state with high taxes, like New York, you may greatly dislike the new tax rule on the allowable deduction you can take for state and local property taxes. “One of the most controversial changes are those surrounding the deduction on state and local income taxes, a.k.a SALT. If you live in a state with high income and property taxes, you could lose out under the new tax plan.”
The New Law permits you to deduct up to $10,000.00 in combined state and local property taxes plus income or sales taxes. Once again, let’s look at the main facts:
1. In the past, you may know, we have always deducted the full amount of state and local property taxes we paid. This is no longer allowed. We are limited to $10,000.00 deduction for state and local property taxes.
2. Taxpayers will no longer be able to fully deduct state and local property taxes plus income or sales taxes.
Therefore, it follows that, if you live in a state that has high taxes like California or New Jersey, get ready to pay more tax to the federal government as well.
Exploring the New Tax Rules Designed to Off-set The Above Two Big Tax Situations.
The big question here is will the revitalization of American businesses create enough income to offset the new limits imposed on the property tax deduction and the state and local tax deduction?
Many observers believe the vast amount of home buyers will discover the overall rejuvenated economy will compensate for drawbacks in the new tax laws. Likewise, there are some other tax rules that act like tax breaks to off- set changes in rules for property tax deduction and interest deduction.
Tax Situation 3: Off-setting New Tax Rules that Might Help You Retain Your Homeownership Dream:
Do you have a family? Good News! The new tax rules increase the overall child tax credit to $2000.00. This makes the refundable portion 1400.00.
Likewise the tax package almost “doubles the standard deduction, from $6,350 to $12,000 for individuals, and from $12,700 to $24,000 for married couples filing jointly.”
In the coming weeks of our blogs, we will follow up with some clear-cut examples of how these new rules interact with different types of budgets and incomes.
Once you look at some examples, we believe you will have a clearer picture of home purchasing framed by your tax situation.
We’ll give you some facts to help you decide whether this is the year for you to move from renter to owner. You can better understand if you should retain that dream of home ownership.
Tax Laws Might Delay but Not Destroy Dreams of Homeownership in 2018
And, speaking personally, we do love that dream. There are some advantages to owning a home. These are advantages that cannot be run up on a calculator or stuffed into a tax code. Those advantages reside in the heart, of families who prioritize owning their own place.
That is why we dedicate a very special Valentine Greeting to all of you homeowners who have taken the step of purchasing a home and to all of you who are shopping for a house right now.
As experts in Real Estate Law, we’re here to protect your rights. And we are your full-service title company. We are here to help. It is an honor to provide you with your closing, title and escrow services.
Of course, we also send our Valentine Greetings to everyone of our friends, clients and supporters, especially here in the Sanford Community. Thank you for reading our Principal Law Blog, and watch for Part II of this hot Tax Topic for Homeowners.