A re-blog from Keller Williams Blog dated Mar 21, 2019
Tax Time is just around the corner so I thought I'd re-post this informational blog from Keller Williams about what the new tax laws mean for home ownership.
From the Keller William's Blog:
At the end of 2017, the United States underwent the largest tax law overhaul in more than 30 years. The new law, called the Tax Cuts and Jobs Act (TCJA), is effective from 2018 - 2025 and makes several changes to oft-used tax deductions. If you own a home or are in the process of buying or selling, here are the key points you need to know.
ITEMIZE OR STANDARD DEDUCTION?
One of the biggest changes is in the area of standard deductions and itemizations. The TCJA has suspended the personal exemption and has doubled the standard deduction to:
$24,000 for married couples filing jointly.
$18,000 for heads of households.
$12,000 for individuals.
Tightened itemization requirements for home-related write-offs like mortgage interest, property taxes, and state and local taxes, coupled with the increased standard deduction, will likely curtail the number of people who will itemize in the coming years.
Individuals who purchase a home can only deduct interest on mortgages up to $750,000 ($375,000 for married filing separate). For mortgages taken out before Dec. 15, 2017, the limit for deducting related interest is $1 million ($500,000 for married taxpayers filing separately).
Home equity loan interest
The interest deduction on home equity loans was eliminated for borrowings for the purpose of debt repayment, tuition, big purchases, and the like. Now the interest deduction only applies if the funds are entirely used to buy, build, or substantially improve your personal home.
State and local taxes (SALT)
Where it was once unlimited and you could deduct the full amount of state and local taxes you paid, the SALT deduction is now capped at $10,000 ($5,000 for married taxpayers filing separately). This limit includes property, income, and sales tax.
First-time home buyers have the option to pull out up to $10,000 from their IRA or Roth IRA to fund their house down payment without having to pay the 10 percent early withdrawal penalty. Regular income tax still applies on the withdrawal.
Capital gains on the sale of a home
TCJA left the capital gains provision unchanged. This is not a deduction, but rather an exclusion from taxable income. And it’s substantial. If you’re single, you can exclude up to $250,000 of gains. If you’re married, that number doubles to $500,000. This exclusion applies if the below criteria are met:
The home was used as your main residence for at least two years in the five-year period before you sell it.
You haven’t used the exclusion in the last 24 months.
This deduction has been suspended and is now only applicable to active duty military.
Costs associated with selling your home
Provided you’ve lived in the home you’re selling for at least two of the last five years and it’s your primary residence, the following expenses will increase the cost basis in your property.
Real estate agent commissions
Legal and escrow fees
Home improvements (not repairs)
Advertising and staging costs
Although we’ve outlined the highlights of the Tax Cuts and Jobs Act, there is still a lot to know.