In what is the most significant overhaul to the tax code since 1986, many are now wondering how the new tax law affects them. Here are some of the most noteworthy changes to homeowners (buyers and sellers) brought upon by the new tax law:
Previously, all property taxes paid to state and local governments could be claimed as an itemized deductions providing the advantage of reducing taxable income. Under the new law, taxes are now grouped together under a $10,000 limit (called SALT) for both individuals and married couples.
On the other hand, the standard deduction is being doubled to $12,000 for individual taxpayers and $24,000 for joint filers. A recent analysis done by Zillow suggests that the increased standard deduction will result in a reduction in households that itemize deductions from 44% to 18% going forward.
In addition, home sellers can exclude up to $500,000 for joint filers or $250,000 for single filers from capital gains when selling a primary home as long as the homeowner has lived in the residence for two of the past five years.
Capital Economics predicted that most homeowners will see an overall tax cut. If those savings are put towards purchasing a home, the overall tax reform could be positive for the housing market.
Between now and 2026, you can deduct the interest on up to $750,000 in mortgage debt used to purchase or improve a home as an itemized deduction. It was $1M before (and will become again when the law reverts to its prior state in 2027).
While most homes in this country are worth far less than $750,000, this change affects more of those homebuyers in expensive housing markets especially along the coasts. Research done by the National Association of Realtors also indicates that taxes generally reduced with the new SALT limitations of $10,000, may incentivize retirees and fixed income households to join those thinking of relocating to lower tax states.
And what is one state, which has seen an influx of retirees and new residents come in these past few years, renters becoming buyers as well as a bevy of homes including those in the luxury market offering more bang for the buck? Arizona, that's for sure!
In addition to lower cost of living, lower tax rates, climate, amenities and more, picture outdoor activities like parks and golf courses as well as cultural attractions when thinking of moving to Arizona. 107,600 new residents did! According to the U.S. Census Bureau, the said number of new residents between July 1st of 2016 and 2017 showed Arizona topping the 7 million population mark for the first time.
So give Arizona a look if the new tax law is making you consider relocating to another state. And keep The Shanna Day Team in mind if you need the right real estate experts to help you find your dream home in The Valley!
So What Are The New Tax Law's Noteworthy Changes For Homeownership?