There's been a lot of hub-bub in the news about the new tax law. Until now I've just glazed over when I heard it talked about because I didn't understand what it meant for me, my clients, or for our local real estate market. Until now!
First, the tax law does not make any changes to capital gains. There will continue to be an exclusion for single people up to $250,000 and for married couples up to $500,000 as long as they've lived in the home for the last 2 out of 5 years, haven't used the home for business, and haven't completed a 1031 exchange.
Second, the tax law says the deductibility of mortgage interest is capped at $750,000 (last year it was 1 million). According to the National Association of Realtors, homes with mortgages over $750,000 equates to 3% of the Twin Cities Metro Area.
Third, the deductibility of income and property taxes are capped at $10,000. In the last 2 years there was 2.5% of the Twin Cities Metro Area that paid over $10,000 in property taxes.
While we may see this change the way luxury homes are purchased, this won't have much affect on the crazy strong seller's market we've seen for those homes priced under $400,000.
The 5 most affected areas of the country:
San Jose - Sunnydale - Santa Clara CA Metro Area
San Francisco - Oakland- Hayward CA Metro Area
Santa Cruz- Watsonville CA Metro Area
Santa Maria-Santa Barbara CA Metro Area
Honolulu HI Metro Area
I'm here to answer any questions you have about the real estate market. Just let me know how we can help!
Of course any specific questions you have about your particular tax implications are best directed to your tax professional.