New Tax Regulations: Impact on Current and Future Homeowners
by Rebecca Wolfe Spratlin January 2018
The new tax laws that where passed by Congress at the end of 2017 became effective on January 1, 2018. These new laws will have significant impacts on current homeowners as well as on potential future homeowners. Home sales have been very strong in HPWBANA for the past several years and the median home price has increased by 42% over the past five years. These increases have been due to home appreciation, as well as significant capital investments in home renovations and new home construction. Homes in our neighborhood have provided us with a wonderful quality of life, as well as very strong returns on our investments. While home values are expected to increase, albeit at a much slower rate, the tax laws could potentially reduce the overall return on these investments, especially for the higher value homes.
In the past several years, homeowners have been able to deduct the entire amount of their annual mortgage interest expenses for mortgages up to $1,000,000. The new tax law caps new home mortgage interest deductions on mortgages of $750,000. For example, home buyers who put 20% cash down can purchase a home for the price of up to $937,500 and still deduct their entire mortgage interest expense. To put things in perspective, 34% of the 80 homes sold in HPWBANA during 2017 sold for more than $937,500. (Note: this law does not apply to new home mortgages with binding contracts effective prior to December 16, 2017, as long as the home sales close before April 1, 2017).
The more far-reaching impact is the property tax deduction that will be capped at $10,000 for those married filing jointly and itemizing. For example, residents of HPWBANA who have a property tax rate 2.214% will not be able to deduct property taxes for any amount for which their homes appraise above $451,675 (after Homestead, 65 and Over, and other exemptions). The average price of homes sold during 2017 was $900,117 and the median price was $760,000. Given these home values in HPWBANA, a vast majority of us will see a significant reduction in the amount of property tax deductions we can take.
Interest expenses incurred by Home Equity Lines of Credit (HELOC) will no longer be eligible for deductions.
It is important to note that the standard deduction for married and filing jointly has increased from $12,700 to $24,000 in 2018, so many who have previously itemized mortgage interest, property taxes, medical expenses, charitable contributions and other miscellaneous deductions may find that they are better off taking the standard deduction rather than itemizing.