Many homeowners, buyers, and sellers are wondering how the tax reform legislation that passed in December is going to impact them.
Mortgage Interest Deduction – through the end of 2025 new home buyers will only be able to deduct interest on the first $750,000 of a mortgage. This is a decrease from $1 million. The deduction cap will revert to $1 million in loan value in 2026. This has no impact on EXISTING mortgages – only new home buyers. It’s important to remember that these are loan amounts and not sale prices.
Home Equity Loan Interest Deduction – the new bill suspends the interest deduction on home equity loans until 2026. This is a change from deductions being allowed for loans up to $100,000. That said, there is a caveat – interest on a home equity loan can be deducted if the proceeds are used to substantially improve the home.
State and Local Property Taxes – with the new legislation the property tax deduction is limited to $10,000. There was previously no cap. ATTOM Data Solutions estimates that approximately 90,000 households will be impacted by this change in the DMV area.
Capital Gains – no change, the deduction for up to $500,000 for joint filers or $250,000 for single filers from selling a primary home remains. The requirement that the home was the filer(s) primary residence for at least two of the last five years also remains.
Moving Expenses – the new legislation eliminates the deduction with the exception of members of the Military.
Estate Tax – the estate tax exemption is doubled to $11.2 million under the new law.
What Does This Mean For The Housing Market?
We think that there could be a temporary slow down simply because everyone is digesting the changes and processing them. We do not anticipate the new legislation to have a significant affect on the housing market. If you are considering buying or selling and have questions about what the changes mean to you personally reach out to us. We’ve been watching this bill intently and are always happy to help. If you have tax questions in general, we know a great CPA!