Tax Cut + Jobs Act + Real Estate:
Here’s What You Need To Know
After the many twists and turns that the Republican tax-overhaul legislation has taken thus far, it might be unclear to homeowners what’s in store for them.
On top of making modifications to the mortgage interest deduction, the bill limits the deductibility of property taxes and state and local income taxes to a combined $10,000. In states such as New York and California where home prices and property taxes are high, this change means some homeowners could face bigger tax bills beginning next year
However, it does not specifically ban early payment of property taxes..
Standard Deduction Doubles
The GOP tax bill roughly doubles the standard deduction for all taxpayers — i.e., it goes to $24,000 from $12,700 for married couples — the combined value of all your available deductions would need to exceed that new amount for itemizing to make sense.
If you already own a pricey home and it’s your primary residence, you’re in luck. Under the bill, homeowners who purchased a house before Dec. 15 of this year will be able to continue deducting the interest they pay on mortgage debt of up to $1 million.
For purchases after that date, that cap is lowered to $750,000 ( from previously $ 1M ) — on your primary residence. This means that the interest you pay on your loan for a vacation house — or qualifying boat, recreational vehicle or camper — wouldn’t be deductible after this year.
However, if you rent your vacation home — i.e., your rent out your beach house for a portion of the year — you can at least write off the costs associated with that activity, which would include a portion of mortgage interest and property taxes.
Additionally, while the cap on mortgage interest reverts back to $1 million in 2026 regardless of when the home was purchased, there is no provision that would bring back the tax break for second homes.
Interest paid on home-equity loans will no longer be deductible beginning in 2018, with no grandfathering in. In other words, if you already have a home-equity loan or line of credit, this is the last year you can write off the interest paid on it for a while.
In 2026, this provision will revert to current law, which allows a deduction for interest paid on up to $100,000 of home-equity debt.
Capital gains exclusion
Taxpayers will continue to be able to exclude up to $500,000 ($250,000 for single filers) from capital gains taxation when they sell their home, as long as they have lived there for two of the previous five years. Earlier versions of the tax bill would have imposed a more restrictive time frame.