What does tax reform package passed late last year mean to you and your Vail Valley real estate portfolio?
Here is a summary of key changes, with a focus on those related to real estate. As always, you will want to consult with your tax professional to understand how your taxes may be impacted.
Primary Residence: Homeowners who remain in a home purchased on or before Dec. 14, 2017, are grandfathered and maintain the $1 million mortgage interest deduction threshold. For primary residences purchased after Dec. 14, 2017, the limit for mortgage interest deduction drops to $750,000. This change may impact the market and how homes are financed in the upper Vail Valley. For homeowners purchasing less expensive homes, opting not to itemize and instead taking the increased standard deduction (see below) may make better financial sense.
Secondary Residence: Interest paid on second home mortgages is deductible but is subject to the $1 million limit for homes purchased on or before Dec. 14, 2017, and $750,000 for homes purchased after.
Capital Gains: The deductible amount remains at $250,000 if filing single and up to $500,000 if married filing jointly – if the homeowner has lived there for two of the previous five years.
Refinancing: Homeowners may refinance mortgage debts up to $1 million and deduct the interest if they owned the home on or before Dec. 14, 2017, and the new loan does not exceed the amount of the mortgage being refinanced.
Home Equity Debt: Home equity loan or line of credit interest is no longer deductible. Previously, interest paid was deductible for debt up to $50,000 for single filers and $100,000 for married filing jointly. Interest is still deductible on home equity loans (or second mortgages) if the proceeds are used to substantially improve the residence.
Moving Expenses: Moving expenses are no longer deductible except for members of the military.
Standard Deduction: The standard deduction is roughly doubled to $12,000 for single filers and $24,000 for joint filers.
Income Tax Brackets: The new law retains seven brackets and provides for generally lower tax rates. All individual provisions are effective for the 2018 tax filing year.
State and Local Taxes (SALT): Homeowners may itemize up to $10,000 for the total of state and local property taxes and income or sales taxes. Previously, homeowners could deduct all taxes paid. Now homeowners may find a portion of their tax bill to be nondeductible.
Thanks to the KW Blog and Nancy Seraphin from KW Park City for their assistance with this summary.