Five ways tax law affects homeowners by: John Adams

TEASE: The Trump Tax Bill is now law. But with all the last-minute negotiation between the house and senate, the ink is still not dry on the final bill, and even once it dries it will take years for the courts to interpret all its provisions. But there is one thing we know for sure — the bill will have a major impact on millions of American homeowners. And we are just now finding out what it all means.

Fox5 Real Estate expert JOHN ADAMS guides us through the top five provisions of the tax plan that will impact home owners and prospective home buyers.

Q: John, let’s take a closer look at the new TRUMP TAX BILL. Break it down for us:

A: OK, but remember that the INK is still wet on this bill and neither I nor my CPA bride has actually read the law itself, so all this is sort of based on preliminary judgements and interpretations, and we’ll know a lot more later. That being said, there are several significant changes we need to talk about:

1. Mortgage Interest Deduction rules have changed significantly in two areas:

• The deduction for Interest on debt used to purch or imp your pers res AND a secondary res has been lowered from $1,100.000 to a total of $750,000. Hurts high end buyers.
• By elim the personal exemption and effectively doubling the standard deduction, the bill essentially raises the threshold for anyone to benefit from itemizing deductions. That makes the deductibility of home mortgage interest MUCH less beneficial to the first time buyer. Hurts first time buyers.

2. The deduction for Property Taxes & State & Local Taxes is now limited to $10,000 TOTAL. It was previously unlimited. This will hurt homeowners in high tax states like New York and California, while low tax states like XXX and XXX will be unaffected. In effect, taxpayers in lower tax states were subsidizing the payment of monies to government in high tax states, and it was grossly unfair. The impact will be to depress values in high tax environment states, and is likely to increase pressure on local governments to lower property taxes and income taxes. That’s probably a good thing.

3. HELOC deduction The deduction for interest on a home equity line of credit was previously based on interest payments for any debt secured by your principal residence for up to $100,000, and could be used to finance any purchase for any reason.

But now, HELOC interest is considered part of the total debt on the residence, so it is subject to the $750,00 limit and, more importantly, the HELOC interest is now subject to the same rules. That means DEBT SHIFTING is DEAD. No more buying a new car with your home equity loan and deducting all the interest on what truly is a car loan. IMPACT: By eliminating one of the benefits of ownership, it dims the attractiveness of owning a home at all levels.

4. When you sell your principal residence, you can exclude capital gains on up to 250,000 per owner/occupant. Yes, you have to live there for at least two of the five years preceding the sale, but the old law allows a couple to exclude up to half a million dollars from taxation when they sell the family home. THE BIG NEWS IS that there is NO CHANGE In that area. Some members of Congress wanted to lower the exclusion amounts dramatically, but that would have negatively impacted our seniors and empty nesters, many of whom have their life savings tied up in their homes. The attempt to limit the exclusion failed.

5. Some GOOD NEWS about the Tax Bill. There was a strong movement by some congressional leaders to remove the deduction for interest on SECONDARY RESIDENCES entirely, which would have been devastating to the vacation home industry and to home prices in resort communities.

Fortunately, it was added back in at the last second and made its way to the President’s desk. So you dodged a bullet if you ever hope to have that dream home on St Simons Island!

Q: John, what’s the bottom line?

THE BOTTOM LINE: Homeowners and prospective buyers got a mixed bag from the TRUMP TAX BILL. And everything we just talked about is based on preliminary information I have gathered, so we really need to give analysts and accountants time to sort it all out. But the good news is this: for most Americans, owning their own home is STILL likely to be the best investment they ever make.

TAGLINE:

Atlanta native John Adams is a broker, broadcaster, and writer who owns and manages the residential real estate in the Atlanta area. He answers any and all real estate questions on his award-winning radio show every Saturday at 10 a.m. on the MONEY99 Digital Network. You can contact John through his website at Money99.com, where you will find additional information about the radio show.