There have been a lot of questions surrounding the recent tax reform bill that was passed in Washington. The National Association of Realtors had a lot of influence relative to the impact on aspects having to do with real estate, and managed to help protect essential and important homeowner benefits such as the exclusion for capital gains on the sale of a home, and the mortgage interest deduction for primary and secondary homes. Those and other last minute changes to the Tax Cuts and Jobs Act of 2017 are as follows, in easy to understand terms:
- Capital gains exclusion. In a huge win for current and prospective homeowners, current law is left in place on the capital gains exclusion of $250,000 for an individual and $500,000 for married couples on the sale of a home. Both the House and the Senate had sought to make it much harder to qualify for the exclusion.
- Mortgage interest deduction. The maximum mortgage amount for households deducting their mortgage interest has been decreased to $750,000 from the current $1 million limit on primary and secondary homes. The House bill sought a reduction to $500,000.
- State and local tax deductions. Both property taxes and state and local income taxes remain deductible, although with a combined limit of $10,000. Both the House and Senate bills sought to eliminate the state and local income tax deduction altogether.
- Pass-through entities. The bill significantly reduces the effective rate of tax on business income earned by independent contractors and income received from pass-through entities. This change will potentially lower the taxes of these types of professionals.
We will be publishing more information as it is made available, as the professionals and experts continue to decipher myriad details of the bill.