Tax Reform & Housing-Spring 2018 Preview

Mortgage rates have climbed to their highest levels since 2014 and at this point a 4.00% rate is out of reach for even the most qualified borrowers. However, current rates should still be viewed with some perspective since rates over the past several years are some of the lowest levels ever recorded. Just 10 years ago the going rate was +/- 6.50% for a 30-year fixed rate mortgage and in the 1980's, borrowers were faced with rates close to 18%. Rates are still near half of their historical average of 8%, so we are thankful that rates are still close to historic lows providing borrowers a continued opportunity to lock in a low rate.

Tax Reform In December 2017, the Tax Cuts and Jobs Act was signed into law. The housing industry was concerned about the impact of the bill and any unintended consequences that might follow. So far, we haven’t seen a major impact as housing remains strong with many buyers, but not enough inventory. Economists are more conerned about rising mortgage rates than tax reform, we don’t think the tax bill will have a major impact on housing, but only time will tell. Here are some key takeaways from the tax bill:

The mortgage interest deduction: If you buy a home between now and 2026, you can deduct the interest up to $750,000 (Loan amount) as an itemized deduction. 95% of the loans that are originated in the US fall below the $750,000 cap. If you take out a loan above $750,000, you will still be able to deduct and prorate interest up to $750,000. Anyone who took out a mortgage in 2017 or earlier will be able to deduct interest up to $1 million in debt, the old cap, even if they refinance to get a lower rate.

HELOCS (Home Equity Lines of Credit): Interest on HELOCS are no longer tax deductible, so if you have a HELOC, you may want to consider refinancing and rolling into one mortgage while rates are still low.

Capital Gains on Home Sales: The biggest win for the housing industry may be that the final bill maintains the exclusion for capital gains from the sale of a primary residence. This means a taxpayer who sells a home may exclude up to $250,000 of gain from taxation ($500,000 if married filing jointly) if he or she has owned and used the home as a primary residence for two of the past five years.

Give us a call if you are thinking of refinancing or are looking at purchasing a home. We will gladly provide you a no obligation free quote and Pre-Approval letter.