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.

Standard Deduction

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

Your home and other real estate investments often represent one of your largest assets. Similar to an annual wellness physical, as a property owner, you can benefit from an annual review of your real estate investments.

What exactly should a real estate check up cover?

Typically, it involves meeting together to review an update on the current market value of your home and other properties, and information on the local real estate market. We will review questions such as:

If you were to sell your home today, what would the value be and how much equity is there?
What homes are on the market that might interest you?
If you’re considering any renovations, how much would that impact your home value?
What are the trends in the real estate industry? Are values in the local housing market increasing, decreasing, or remaining stable?
What are your short term and long term goals?
Are you anticipating any life changes, such as a change in marital status, a new child, older children leaving the home, or perhaps a parent moving in?
If you don’t already own rental property, have you considered expanding your real estate portfolio?

Let’s Get Started!

During an annual real estate review, we’ll talk about market value in general, and specifically for your neighborhood and home. Property values in neighborhoods and communities appreciate at different rates. A current market analysis for your home and rental properties will help you decide if now is a good time to sell, or if it’s better for you to wait.

We will discuss goals and specific ideas for your short and long term plans.

It’s possible that a refinance of your current mortgage may be a consideration to help you accomplish your goals. Depending on the equity in your home, we can discuss the benefits of consulting with a lender about improving your current mortgage interest rate, eliminating mortgage insurance, obtaining cash to payoff other debt or fund other financial goals, such as a rental property acquisition.

In Colorado, you will receive your county property tax assessment later this year. We can review the county assessed value and determine if it’s in your best interest to challenge the value. This may have favorable impact on your real estate taxes. If so, you’ll be provided with appropriate data to submit to the county for further review.

Part of our team‘s on-going to commitment to you is to share information that will assist you with your real estate goals.

Give us a call to schedule your real estate checkup!

The Tax Cuts and Jobs Act: What it Means for Homeowners