Just before the start of 2018, the Tax Cuts and Jobs Act was signed into law. Many homeowners have been worrying about what this means for them and the value of their home. Whether you’re happy or upset with the act, it’s inevitable that it will have an impact. Several adjustments will happen with the calculation of your gross taxable income, exemptions you can use, and deductions you receive.
So, what’s this mean for you as a homeowner? Let’s break down some of the changes. The first change is the deductions you can take on state and local property taxes. Before, all state and local property taxes were deductible. This is no longer the case. As a homeowner, you can itemize up to $10,000 of the total payment on these taxes.
Another limitation that has been implemented is the deduction for your mortgage interest. This part of the act reduces the amount of mortgage debt you can deduct interest on. Previously, this was a $1 million limit but is now at $750,000. The good part about this is that it’s only applicable to loans taken out after December 15, 2017. So, if you already have a mortgage, you’re still using the $1 million limit.
One big other change is that the standard deduction for taxpayers has doubled for both those filing as individuals and those filing jointly. This will most likely lead to many taxpayers taking that standard deduction instead of itemizing your filing.
A part of being a homeowner that has been enticing is that you get to itemize your deductions, and there are incentives for doing that. The new standard deduction is likely to lessen that incentive. This isn’t a huge deal, as there are still so many pros to being a homeowner!
All of these changes are expected to slow the increase in home prices, especially in expensive markets like the one here in Denver. It’s important to remember that home values and taxes vary across cities, so what we experience in Denver is different than what others experience in a smaller, or larger, area. Another thing to remember: the slowing of increase in home prices does not mean that the value of your home will decrease.
At the end of the day, the new act will have an effect – but it will be less than what many originally thought. We can expect to see the rising home prices to slow down, which will be a relief! Being a homeowner has so many benefits outside of taxes, such as increasing your personal equity, so don’t let a new tax act change the way you think!