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Tax bill: Plenty of Ramifications

Orion’s brokers know that the tax bill has passed. It is not particularly good for our clients, either current home owners or renters looking to buy a home. Do you use an accountant? It will no longer tax deductible, for example.

Many of Orion’s brokers specialize in higher loan amounts. The jumbo-mortgage market has been a bright spot for many brokers, with rates often lower than conventional conforming products in recent years. The tax law could take some of the shine off it. The tax-code overhaul, among its many other consequences, eliminates some of the benefits of homeownership, particularly for high-end homes.

But as tight as the affordable rental housing market is, it'll worsen. The Republican tax plan lowers the corporate tax rate from 35% to 21% and lowers taxes on pass-throughs. These changes will reduce the value of tax credits used to build low income-housing, thus reducing the number of affordable units built by 15% or 14,000 units/year. Other changes make renting relatively more attractive, increasing demand. That will boost market rents.

For good news, the capital gains process when selling a home did not change. With some exceptions, a married couple filing their taxes jointly can exclude up to $500,000 in capital gains on the sale of a home, if they have used it as a primary residence for at least two of the last five years. A single individual can exclude up to $250,000.

Yes, the SALT (state and local tax) deduction is capped at $10K (property or state/local income), the individual mortgage interest deduction on up to $750K in debt. In California, for example, the average SALT deduction is well above $40k, and the average property deduction is above $10k. Going forward, the deduction for both SALT and property tax will be capped at $10k.

As things stand now, one can generally deduct the amount one pays for state and local income taxes, including property taxes, on the federal income tax return. You can also deduct the interest you pay each year on mortgage debt up to $1 million, a cap that can cover multiple homes. Plus, you can generally deduct up to $100,000 in interest you pay on a home-equity loan or line of credit.

Orion’s brokers should know that under the new plan taxpayers may deduct only up to $10,000 total, which may include any combination of state and local taxes, including property taxes (also sales taxes). But don’t try to prepay your state and local income taxes before year-end to circumvent the new limit - your accountant and won’t allow it. One can also deduct the interest paid on mortgage debt up to $750,000. But if someone bought a property before Dec. 15, they can still deduct interest up to $1 million (the limit under current law).

Home equity loan interest is no longer deductible for anyone. The bill roughly doubles the standard deduction, and it reduces the incentive to buy a home by making far fewer home owners eligible for preferential tax treatment. 


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