Confused about the new Federal Income Tax Law that just went into effect this year? Do you know if the mortgage interest tax-deductible feature will still work for you? What about property tax deductions?
Confusion, especially when it comes to our money, can certainly lean toward panic and anxiety. In my opinion, I believe the vast majority of us have no real concern for panic.
Exclusion of Gain on Sale of Principal Residence.
Short answer: If you are getting ready to buy a house; chances are pretty good that you will intend to stay in the home for longer than two years. Should an unforeseen “life event” (job transfer, divorce, etc.) show up before that two years; you may have to pay tax on the amount of gain you could make in selling the house.
If you move from the home and turn it into a rental property; be sure to keep an eye on the calendar to know when that five-year maximum has been reached. If you lived there for two out of five years and sell within that five years; you should be able to avoid capital gain. IF however, you don’t meet the two-year minimum as a residence and rent it for several years – or sell after the five years regardless; you either pay capital gains OR would have to roll your proceeds into a similar property, i.e. residential rental; in order to avoid the gains tax.
Mortgage Interest Deduction
Short answer: Unless you are planning on getting a mortgage over $750,000; you won’t lose your deduction for mortgage interest.
It would be a good conversation to have with your accountant, CPA or financial planner. Depending on how much mortgage interest – and other deductions you have – the increased standard deduction, written into the new law, may result in you won’t need to do any itemized deductions. You can’t itemize deductions AND take the standard deduction. It’s one or the other.
State and Local Taxes
Short answer: This one could impact you. If your property taxes are high and your State has a high income tax rate; you could easily exceed the $10,000. If you have not yet purchased your home; this could be a part of your decision. For example, I live in the Portland Metro Area in Oregon. That includes Vancouver Washington. Washington has no income tax and Oregon does.
This article is not meant to be a resource for tax advice but instead a resource for basic information concerning only certain aspects of the new tax code and how they may impact real estate market.
You should get tax advice from your accountant or financial adviser, who will explain how the entire tax code will effect your income tax return.
Also, keep in mind that this new tax code can easily be revised as the analysis of the new law evolves.
Personal reasons; not tax code are still the driving force of wanting to purchase a home. It might be you just got married; are looking for a good place to raise children; would like a dog to be part of your family; want to be near friends and family; need a bigger house or want to better enjoy your retirement.