We just enacted the largest tax code changes in the last three decades. It is called the Tax Cut and Jobs Act of 2017. The most significant changes enacted are as follows:
On primary residences, mortgage interest paid on $750,000 of combined mortgages after December 12, 2017 will only be deductible. If you have mortgages taken out prior to this date, you will be able to write off the interest on first mortgages with loan balances up to $1,000,000, and another $100,000 of secondary equity financing. It is actually more complicated than this on any prior mortgages, so be advised to check with your tax advisor on the interest deductibility on those prior loans.
The deductibility of property taxes on primary residences will now be capped at $10,000.
The Standard Deductions almost double, which will mean fewer taxpayers will be itemizing deductions. For example, the first $24,000 of income will not be taxed for a couple filing jointly in 2018.
The new top tax rate for individuals with an income of $500k, or couples filing jointly of $600k+, is 37%.
The Estate Tax exemption nearly doubles to $11.2M for individuals and $22.4M for couples filing jointly.
Some corporate income will be taxed at lower rates. This is complicated, so strategize with your tax advisor on this income.
How will this effect real estate values?
The “jury is out” for now. This might not have much of an impact, especially in the $1M market and under. However, it could have a negative effect on higher priced properties due to the new limitations on mortgage interest and property tax deductibility. Our best guess is it won’t have a big effect on this segment of the market as most homeowners will continue to want to own homes versus renting. What they might lose in deductibility might be regained in less income taxes.