The National Association of REALTORS® (NAR) worked throughout the tax reform process to preserve the existing tax benefits of homeownership and real estate investment. While some benefits of homeownership are diminished, NAR maintains that the final legislation will benefit many homeowners, homebuyers, and real estate investors.
Most changes will take effect on January 1, 2018.
Tax returns filed during the spring of 2018 (for the 2017 tax year) are not generally affected. But knowing about these changes now will help taxpayers plan and understand how the TCJA could impact their take-home pay and their 2018 tax refund.
Tax Rate Reductions
- The tax rate schedule retains seven brackets with slightly lower marginal rates of 10%, 12%, 22%, 24%, 32%, 35%, and 37%. The prior tax rate brackets were 10%, 15%, 25%, 28%, 33%, 35%, 39.6%.
- The final bill retains the current-law maximum rates on net capital gains (generally, 15% maximum rate but 20% for those in the highest tax bracket; 25% rate on “recapture” of depreciation from real property).
Exclusion of Gain on Sale of a Principal Residence
- The final bill retains current law. A homeowner is required to live in their home 2 out of the last 5 years, instead of the proposed 5 out of the last 8 years, to qualify.
Mortgage Interest Deduction
- Interest on a new home mortgage is limited to interest paid on a maximum of $750,000 of a new mortgage taken out after December 14, 2017. Current loans of up to $1 million are grandfathered and are not subject to the new $750,000 cap.
- Taxpayers with a mortgage taken out before December 15, 2017 can continue to claim home mortgage interest on up to $1 million. The $1 million limit continues to apply to a refinanced mortgage incurred before December 15, 2017, and requires that the new loan does not exceed the amount of the mortgage being refinanced.
- Interest on a home equity loan is no longer deductible unless the proceeds are used to substantially improve the residence.
- Interest remains deductible on second homes, subject to the $1 million/$750,000 limits.
Many taxpayers who previously itemized deductions will now claim the standard deduction instead.
- The final bill provides a standard deduction of $12,000 for single individuals and $24,000 for joint returns. The new standard deduction is indexed for inflation.
Individuals should consult a tax professional about their own personal situation.
Source: National Association of REALTORS and www.hrblock.com