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Tag: housing

Taxes and homeowners Perspectives

How The Tax Bill Affects Homebuyers

For years, the US tax code has encouraged Americans, especially first-time homebuyers, to get “a piece of the American dream” by becoming homeowners. Since the 1940s, America has seen the positive effects of building credit and building equity through homeownership.

America is one of the few countries in the world to offer potential homeowners a fixed-rate 30-year mortgage product. Homeowners have benefited for decades from tax incentives that allow us to deduct mortgage interest from our tax bill, and from home equity lines of credit that can help pay for a child’s college tuition.

Get ready for some changes in 2018.

This week, both the US House of Representatives & US Senate passed the most sweeping changes to the US tax code since 1986. The new tax bill cuts the corporate tax rate, revises the existing tax bracket structure at every income level, and includes several significant changes to deductions that historically offered incentives to first-time homeowners.

The bill is ready to be sent to President Donald Trump, and could be signed into law before Christmas, so we at STEM Lending wanted to tell you about several specific changes that are likely to affect your search in 2018:

tax code us tax bill

How The New 2018 Tax Bill Could Affect You:

Mortgage Interest Deductions

Mortgage interest deductions were once thought to be untouchable as a strong incentive for first-time home buyers. The history of this incentive was originally a part of a 1913 tax provision which allowed business owners (ex. farmers) to deduct any interest they paid on business expenses. The mortgage-interest deduction now lets people who buy homes deduct part of the cost of their mortgage on their taxes. According to the Joint Committee on Taxation, MID saved Americans $77 billion last year!

What was finalized in the new tax bill, however, caps the limit on deductible mortgage debt at $750,000 for loans taken out after Dec. 14, 2017.  If you took out a mortgage loan before Dec. 14, you will still be able to deduct interest on mortgage debt up to $1 million. Mortgage interest on second homes can be deducted but is subject to the $750,000 limit.

Current Tax Law Through December 31, 2017

New Tax Law in 2018

Mortgage interest

You may deduct the interest you pay on mortgage debt up to $1 million ($500,000 if married filing separately) on your primary home and a second home.

For homes bought before Dec. 15, 2017, no change. But for homes bought Dec. 15, 2017, or later, you may deduct the interest you pay on mortgage debt up to $750,000($375,000 if married filing separately).

Property Taxes

Currently, taxpayer can fully deduct what they pay in state and local property, income, and sales taxes from their federal tax returns. The new tax law in 2018 caps these total deductions at $10,000. This new law may have a very real affect on your bottom line if you reside in a state with above-average local and state taxes like New Jersey, New York, Oregon, or California. *One caveat* the $10,000 cap can be any combination of property, income, and sales taxes. This compromise between House & Senate Republicans was very closely watched, and will surely be a rallying point in the coming months, when midterm elections are held.

Current Tax Law Through December 31, 2017

New Tax Law in 2018

Property taxes

You may deduct the property taxes you pay on real estate you own.

You may deduct up to $10,000 ($5,000 if married filing separately) for a combination of property taxes and either state and local income taxes or sales taxes.

Capital Gains Exclusion

If you’re planning on selling your house in 2018, you know that capital gains taxes = the difference between the price you paid for the house and the price you ultimately sell it for. If you have not lived in the home you are selling for at least two years, your capital gain is treated as taxable income under the ‘ordinary income’ tax brackets (which also just changed). Home sellers can benefit by excluding up to $500,000 for joint filers or $250,000 for single filers for capital gains when selling a primary home as long as the homeowner has lived in the residence for 2of the last 5 years.

Current Tax Law Through December 31, 2017

New Tax Law in 2018

Capital gains

In order to qualify for this provision, it is mandatory that you have lived in the home as your primary residence for at least 2 of the last 5 years, before selling.

With all the 2018 tax changes set to take effect January 1, 2018, how will this affect your decision to buy a home? If you are looking at getting pre-approved, or already searching with a real estate agent, give us a call at 646-798-1800, or email us at support@stemlending.com so we can help find you the best mortgage loan. Visit STEM Lending to apply online, or learn more about the mortgage process.

We look forward to helping you find your dream home in 2018.