The year is almost over, and the holiday season is about to kick into high gear.
If you have been searching for a new home, you may be tempted to take a break until the spring. One thing to consider if you have your eye on a possible property – buying before year-end can result in tax advantages that might convince you to continue the process.
Tax Cuts and Jobs Act
There are many advantages to buying a home, but the Tax Cuts and Jobs Act
(TCJA) changed things and made people pause. By completing your research and finding out what works best for you in your income bracket, you can determine if now is the time to make that new home a reality.
In his article on forbes.com
, Karl Kaufman points out that, “Between changes to the Alternative Minimum Tax (AMT) and the change in deductions for State And Local Taxes (SALT), potential homebuyers may stand to benefit more from the tax law by purchasing a house before the end of the year.”
Some things to consider include:
In January 2018, the TCJA suspended home equity loan interest deductions
and taxpayers were worried that home equity loan and home equity line of credit (HELOC) interest was no longer a home-buying benefit.
Before the TCJA, homeowners could itemize deductions of mortgage interest for first and second homes of up to $1 million with additional home equity debt of up to $100,000.
In February 2018, the IRS clarified that this interest is still deductible, but the new law changed the limit to $750,000 in total. Although the limit was lowered, it can still prove to be a benefit to owning your own home.
With the standard deduction for all taxpayers roughly doubling, some will find it quicker and easier to use the standard
instead of itemizing interest deductions.
Under the TCJA, the deduction for state and local property taxes has been combined with state and local income taxes
and limited to $10,000. Again, it may make more sense for some people to use the standard deduction instead of claiming property taxes.
Home sale exclusion
lets homeowners who used their home as a primary residence for at least two of the five years preceding the sale of their home to avoid paying taxes on up to $250,000 of capital gains ($500,000 for married couples).
Early drafts of the TCJA considered changing the length of time and removing the deduction for taxpayers with an adjusted gross income of over the same amount ($250,000 for individuals/$500,000 for couples), but it did not make it into the bill.
As home prices and interest rates continue to rise, buying now makes perfect sense. As always, it is important to consult a reliable accountant who is knowledgeable about the changes in tax law.
At KBT Realty
, we continually keep abreast of the changes in taxes that affect real estate and are happy to provide advice and recommend reliable accountants. If you want to make the leap and buy before the year ends, call us and we will help you find your new home quickly.
Becky Brown was born and raised in Wilmington girl, and has been a full time Realtor since 1995. Prior to real estate, she worked in the banking and insurance industries. She has a passion for local Fire, Police & EMS staff and volunteers and has worked with local providers to offer special incentives for first responders.Becky is an active volunteer, having served on committees for the American Heart Association, American Cancer Society, Muscular Dystrophy Association. She also served several terms on the Board of Directors for the American Red Cross. In her free time, Becky enjoys traveling, boating, reading and cooking and entertaining for family and friends. She has a miniature long-haired Dachshund puppy named Axel and loves spending time getting to know him.