RISMedia's Real Estate Magazine

FEB 2018

Real Estate magazine is the industry's leading source for real estate news and information since 1980. Published monthly by RISMedia, Real Estate magazine offers timely and relevant real estate news to the industry's top brokers and agents.

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RISMedia's REAL ESTATE February 2018 79 The GOP tax bill, which includes a $1.5 trillion tax cut, lowers tax rates for individuals and corporations, and introduces limitations on mortgage and tax deductions. The bill will cut the corporate tax rate from 35 to 21 percent and re- peal the corporate alternative mini- mum tax. Taxes for individuals will be cut, with a lower top rate of 37 per- cent, down from 39.6 percent. The legislation also drops the mortgage interest deduction to $750,000, from a previous cap of $1 million, nearly doubles the standard deduc- tion, and doubles the child tax credit. Homeowners will also have a $10,000 cap on how much they can deduct from their state and local tax- es. Individuals looking to buy a home in areas with a higher cost of living will be affected by these changes. High-End Housing Markets Since about 95 percent of homeown- ers are positioned below these de- duction limits, and not many home- owners have mortgages of such large proportions, these changes will be felt in a small section of the market. While the states with af- fordable housing will be largely un- affected by these laws, more people in states with high taxes, including New York, Maryland, Connecticut and California, will deal directly with these alterations. For instance, 20 percent of home- buyers in New York pay more than $10,000 for property taxes alone. These tax reforms might make living in California even more unaffordable, as a lack of affordable housing has decreased the homeownership rate. HELOC Deductibility In 2018, homeowners will have to adjust to a new cap on how much interest they can deduct on mort- gages. Recently acquired mortgage debt, acquired after Dec. 15, 2017, caps out at $750,000, while one's pre-existing acquisition debt is de- ductible up to $1 million. Homeowners that have a HELOC might not be able to take tax deduc- tions depending on the loan's pur- pose. HELOCs used for home acqui- sition, or home improvement, will be deductible, while home equity debt, commonly used for debt consolida- tion, will not be deductible. This applies to new and existing HELOCs that were acquired before Dec. 15, 2017, without grandfather- ing. Going forward, homeowners will have a greater incentive to pay off their debt, if possible, or will have to roll their HELOCs into a deductible first mortgage. While tax reform might cause a fall in property values and make it diffi- cult for homebuyers to afford hous- ing in diverse cities with more em- ployment opportunities, experts see possible long-term benefits. These include subsidized house prices, an increase in home-buying and eco- nomic growth in the housing indus- try. In the interim, it's important for industry experts to inform homebuy- ers about how these new tax laws could affect them, and guide them in financing their future home. RE Desirée Patno is president and CEO of the National Associa- tion of Women in Real Estate Businesses (NAWRB). For more information, please visit www.nawrb.com. Affordable Housing and HELOC Deductibility Under New Tax Laws Commentary by Desirée Patno T he new tax bill passed by Congress in December 2017, celebrated as the Trump Administration's first major legislative victory, will have inadvertent consequences for potential homebuyers looking to buy homes in high-end markets, and for those with a home equity line of credit (HELOC). A decrease in home prices and caps on tax deductions, among other effects, will lower affordability in some high-tax states.

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