Here’s what first-time buyers need to know about the Tax Cuts and Jobs Act that was signed into law December 2017.
Mortgage Interest Deductions
The new limit on deductible mortgage debt is $750,000, down from the previous $1 million. There are certain situations which may allow a home purchase to qualify for the $1 million, even for homes closed after Jan. 1, 2018. Talk to a tax professional to learn more. Interest paid on home equity loans is only deductible if the proceeds are used to substantially improve the residence.
Interest remains deductible on second homes, but is subject to the $1 million/$750,000 limits.
Deduction for State and Local Taxes (SALT)
Homeowners who itemize their tax returns can claim up to $10,000 total for state and local property taxes and income or sales taxes. This $10,000 limit applies for both single and married filers and is not indexed for inflation.
Only members of the Armed Forces may deduct moving expenses.
Housing Market Expenses
Homes priced $500,000 and below will only be slightly impacted.
C.A.R. estimates that 60 percent of first-time buyers will purchase a property priced below $500,000, and 80 percent will purchase a home priced below $750,000, so most first-time buyers will not feel the effect that tax reform exerts on home prices.
The supply of available homes for sale also will be slightly impacted, as homeowners delay trading up/down to their next home.
Overall, the California housing market is expected to see a decline of 0.3 percent in active listings in 2018 due to tax reform.
Disclaimer: This is not intended to provide legal or tax advice. Application of provisions to particular tax situations need to be discussed with an accountant, CPA, or tax attorney.