Tax Reform & It’s Impact on Real Estate Market

Source: California Association of Realtors.

Tax reform and the it's impact on real estate market! Since the Tax Cuts and Jobs Act was signed into law last year, many REALTORS® are concerned about the impact of tax reform on the real estate market, their clients, and California’s housing market, as well as its legal implications.

Here are some of the changes:

Mortgage Interest Deduction

• The final bill reduces the limit on deductible mortgage debt to $750,000 for new loans taken out after 12/14/17. Current loans of up to $1 million are grandfathered and are not subject to the new $750,000 cap. Neither limit is indexed for inflation.
• Homeowners may refinance mortgage debts existing on 12/14/17 up to $1 million and still deduct the interest, so long as the new loan does not exceed the amount of the mortgage being refinanced.
• The final bill repeals the deduction for interest paid on home equity debt through 12/31/25. Interest is still deductible on home equity loans (or second mortgages) if the proceeds are used to substantially improve the residence.
• Interest remains deductible on second homes, but subject to the $1 million / $750,000 limits.

Deduction for State and Local Taxes

• The final bill allows an itemized deduction of up to $10,000 for the total of state and local property taxes and income or sales taxes. This $10,000 limit applies for both single and married filers and is not indexed for inflation.
• The final bill also specifically precludes the deduction of 2018 state and local income taxes prepaid in 2017.

I hope this above clip has addressed both the market and transactional side as well as the legal side of tax reform.

Bottom Line

Standard deductions up. Tax rates down. Limitations on mortgage interest and state income and property tax deductions for those who itemize. New deductions for certain business owners. Will the 2018 rules help or hurt you personally, help or hurt your business, help or hurt your clients? Only your accountant can tell for sure.