Important Tax Information

Important Tax Information

 

If you are like most homeowners in the U.S., this new tax bill has left you asking tons of questions about how the legislation will affect you. We’ve compiled some information – and are continuing to do so – to help you understand what to expect this year and help you stay informed as these new changes start to take effect.

 

"Home prices will drop 4% nationwide, compared to projections without the new tax law."

--Moody's Analytics

 

 

 

 

 

 

 

 

 

According to analysis by the Tax Policy Center, taxpayers, on average, will receive a $1,600 tax cut in 2018.

TAX BRACKETS - Generally lower across all income levels Seven brackets (unchanged) but changes in rates that apply to particular income levels.

Example:

Couple filing jointly 10% up to $19,000

12% up to $77,400

22% up to $165,000

24% up to $315,000

32% up to $400,000

35% up to $600,000

37% above $600,000

 

STANDARD DEDUCTION - Doubles to $12,000 for individuals and $24,000 for couples.

 

CHILD TAX CREDIT – The child tax credit, doubles from $1,000 per child to $2,000. This is a credit, so it’s particularly valuable because it directly reduces your tax bill.

 

MORTGAGE INTEREST DEDUCTION Reduced from $1,000,000 to $750,000. The bill limits the deduction to interest paid on the first $750,000 of a loan for a newly purchased first or second home, up from the $500,000 the original House bill proposed. The current limit is $1 million. That means people who would like to buy a home in an expensive market may encounter a tax disincentive to do so. This could also make it harder for home owners in those markets to sell their houses.

The new cap won’t apply to existing mortgages, just new ones. And because of the doubled standard deduction, this may not affect you if you forgo itemizing. A Zillow study estimated that roughly 44 percent of U.S. homes are worth enough for it to make sense for a homeowner to itemize and take the MID under current law. Taking into account the new standard deduction, SALT changes, and MID cap into account, that number drops to 14.4 percent under the new law.

The National Low-Income Housing Coalition estimates that just 1.9 percent of mortgage originations from 2013 to 2015 exceeded $750,000 in value; California accounted for 45.7 percent of them, and New York accounted for 7.4 percent.

A homeowner who is affected by this tax change might consider making an extra mortgage payment in 2017 before the tax changes reduce the portion of their mortgage interest that they can deduct next year.

 

STATE AND LOCAL TAXES - State and local tax deductions (SALT) are capped at $10,000. Currently, taxpayers can deduct what they pay in state and local property, income, and sales taxes from their federal returns. The new law caps these deductions—which can be any combination of property, income, and sales taxes—at $10,000.

This could hurt people with heavy tax burdens in such high-tax states as New York, New Jersey and California. And the architects of the Republican bill barred taxpayers from prepaying in 2017 any state or local income taxes that will face next year.

 

PASS-THROUGH INCOME - The legislation cuts taxes on business income — specifically for business people whose profits are “passed through” and taxed at their personal tax rate. Many experts argue that his will provide an incentive for taxpayers to become independent contractors and restructure their salaries as business income. A high-income earner who would otherwise have to pay the top rate of 37 percent would pay roughly 30 percent on pass-through income. The bill tries to prevent the abuse of this provision through various measures. One will bar some occupations, such as lawyers, from exploiting this provision. Still, clever accountants may find a way around those rules. If so, it might be worth checking with your accountant next year to see if it makes sense to set up an LLC or other partnership and reap the benefits.

 

HEALTH CARE - The bill retains deductions for medical expenses not covered by insurance for 2018 and 2019 once expenses exceed 7.5 percent of adjusted gross income. That rises to 10 percent starting in 2020. And it repeals the requirement in Barack Obama’s health care law that people pay a tax penalty if they don’t buy health insurance.

 

 

Resources:

Regarding Property Tax Pre-Pay - https://www.seattletimes.com/business...

How Will the New Tax Bill Impact Homeowners, Buyers, and Sellers - https://www.washingtonpost.com/news/w...

What the new Tax Law Means for Homeowners - https://www.curbed.com/2017/12/20/167...

Here's How the Country's Housing Market will change - https://www.curbed.com/2017/12/29/16808148/tax-bill-housing-market-calculate-change

 

Disclosure: We are not accountants so please do not rely solely on the information we have provided here. This is only our interpretation of facts from the above-linked articles.

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Cory Brandt
RE/MAX Integrity
371 NE Gilman Blvd, Suite 160
Issaquah WA 98027
Mobile: (206)419-2679