Tax Reform – A Recap Of Most Likely Outcome

I find it fascinating how the talking heads of all media treat everything as if it has already happened. Tax reform is not yet out the House, needs to clear the Senate then get signed into law. Based on what I have read, most taxpayers will see a reduction in their annual taxes. Some taxpayers in the higher brackets will experience a reduction in their deductions for home mortgage interest, property taxes and state income tax. However, current homeowners will see no change in their mortgage deduction status for any loan already in place. New homeowners will fall under the new rules. However, all of this is moot until a final bill is signed into law.

Here is the recap from the National Organization of Realtors:

“Effects on the Tax Benefits of Homeownership

Standard Deduction

  • The final bill follows the Senate bill and provides a standard deduction of $12,000 for single individuals and $24,000 for joint returns.

Mortgage Credit Certificates

  • The House bill repealed MCCs, but the final bill leaves them in the law.

Mortgage Interest Deduction

  • Reduces limit on deductible mortgage debt to $750,000 for new loans taken out after 12/14/17.
    • Current loans up to $1 million are grandfathered.
  • Homeowners may refinance mortgage debts existing on 12/14/17 up to $1 million and still deduct the interest, so long as the new loan does not exceed the amount refinanced.
  • Repeals deduction for interest paid on home equity debt through 12/31/25.
  • Interest is still deductible on home equity loans if proceeds are used to substantially improve the residence.
  • Interest remains deductible on second homes, but subject to the limits.

Tax Rates

  • The tax rate schedule general follows the Senate bill, with seven rates ranging from 10% to 37%.
  • The final bill retains the current-law maximum rates on net capital gains (generally, 15% maximum rate but 20% for those in the highest tax bracket; 25% rate on “recapture” of depreciation from real property).

Moving Expenses

  • Final bill repeals moving expense deduction and exclusion, except for members of the Armed Forces.

Exclusion of gain on sale of a principal residence

  • The final bill retains current law.”


Final Thought

I don’t see anything in the bill that would put a brake on housing based on our overall economy.

Update: As of 03/01/2020 all of the above still applies. Consult your mortgage broker or tax adviser to determine how current law applies to you, specifically.

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