What the tax reform law means for you and your clients

President Trump signed the Tax Cuts and Jobs Act as passed by Congress. All individual provisions of the measure are generally effective after Dec.31, 2017, for the 2018 tax filing year and expire on Dec. 31, 2025, unless otherwise noted. The provisions do not affect tax filings for 2017 unless noted.

Click here to read NAR’s extensive analysis of the law’s impact on homeowners and real estate professionals. Below are several real estate-related changes addressed in the new law and some that had been threatened but were ultimately unchanged in the final bill.

What the law changes

Mortgage interest deduction

  • Reduces the limit on deductible mortgage debt to $750,000 for new loans taken out after Dec. 14, 2017.
  • Current loans of up to $1 million are grandfathered and not subject to the new cap. Neither limit is indexed for inflation.

Home equity loan interest deduction

  • Repeals the deduction for interest paid on home equity debt through Dec. 31, 2025.
  • Interest remains deductible on home equity loans (or second mortgages) if the proceeds are used to substantially improve the residence.

State and local property tax deduction

  • Caps the itemized deduction for state and local property taxes (and income or sales taxes) at $10,000. This limit isn’t indexed for inflation.
  • This deduction was previously unlimited.

Moving expenses

  • Repeals the moving expense deduction except for members of the Armed Forces.

Standard deductions

  • Doubles the standard deductions for individual filers to $12,000 and joint filers to $24,000. This deduction is indexed for inflation.
  • This greatly reduces the value of the itemized MID and property tax deductions as tax incentives for homeownership, as more filers are expected to take the standard deduction rather than itemizing.

What will not change

Like-kind exchanges for real property

  • Retains the Section 1031 Like Kind Exchange rule for real property, but repeals the use of Section 1031 for personal property.

Capital gains

  • Retains current law related to capital gains on the sale of a principal residence

Deductions for medical expenses and student loan interest

  • Retains current law for these itemized deductions
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One Response to What the tax reform law means for you and your clients

  1. Gerald Waldon says:

    I believe the tax reform act is a good thing for Americans overall and the change in the tax law will not adversely affect home sales. We are way overdue for tax reform…most legislators and presidents have kicked this can down the road for too many decades. My hope is that someday, they can simplify the tax laws to eliminate all the paperwork for business owners, like myself. I have to use a CPA to comprehend and interpret all the rules to file to my advantage.

    Liked by 1 person

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