The Proposed New Real Estate Tax Laws:  How do they impact home buying?

I debated writing this article as the new tax laws have not been finalized.  However, many of my clients are asking questions and are concerned about the future.  With that in mind, I want to add two caveats. First, it is important to talk to a tax professional to answer any of your questions.  Second, keep in mind that these changes are still in flux and the final version will likely take parts of each version or even find a middle ground.  The following four categories are the biggest potential tax changes that can impact home buying.

Mortgage Interest

Under the current real estate tax law, mortgage interest on loans up to $1.1 million is tax deductible. The two chambers of Congress have two different versions being considered. The House is considering limiting this to $500,000 and no second home while the Senate would limit tax deductible status to interest on $1 million dollars. There are other changes being made to increase the standard deduction, but this area will likely change to a lower limit, which may affect you if you itemize.

Real Estate Property Taxes

The property taxes from your home are currently able to be deducted from taxable income.  The new tax law would either eliminate this if the Senate version is adopted or limited to the first $10,000 if the House tax law change is in the final version.

Moving Expenses

Under current tax law, you’re able to deduct your moving expenses if your move is related to your job or new location. The key factors are that the distance must be at least 50 miles away from the current commute.  The proposed new tax law will eliminate this deduction completely except for members of the armed forces.

Gain from the Sale of your Principal Residence

Lastly, a huge change that could impact many individuals is the minimum timeframe requirement to claim an exemption of $250,000 of capital gain for an individual or $500,000 for a couple.  Currently, you have to have lived in the home at least 2 of the past 5 years.  The new tax law will likely alter this to be 5 of the prior 8 years.

The changes that are coming to the real estate tax system are substantial and this is but a small overview of the areas that mortgage customers are wondering about.  If you have specific questions about your mortgage situation, feel free to contact your Mortgage Genie, Karen Douglas, who makes each family’s home dream come true one wish at a time.