We have a new year and new rules for your taxes. What does it mean for those of us invested in property or houses? This is kind of dry and I am not an accountant so make sure to contact your personal accountant to insure your are in the best position for 2018.
Mortgage Interest Deduction: the bill reduces the limit on deductible mortgage debt to $750,000 for new loans taken out after 12/14/17. Current loans of up to $1 million are grandfathered and are not subject to the new $750,000 cap. Neither limit is indexed for inflation.
Exclusion of Gain on Sale of a Principal Residence, the bill retains current law.
Homeowners may refinance mortgage debts existing on 12/14/17 up to $1 million and still deduct the interest, so long as the new loan does not exceed the amount of the mortgage being refinanced.
The bill repeals the deduction for interest paid on home equity debt through 12/31/25. Though interest is still deductible on home equity loans, (or second mortgages) if the proceeds are used to substantially improve the residence.
Interest remains deductible on second homes, but subject to the $1 million / $750,000 limits.
The bill allows an itemized deduction of up to $10,000 for the total of 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. The final bill also specifically precludes the deduction of 2018 state and local income taxes prepaid in 2017.
Deduction for Medical Expenses: the bill retains the deduction for medical expenses (including decreasing the 10% floor to 7.5% floor for 2018).
Child Credit: the bill increases the child tax credit to $2,000 from $1,000 and keeps the age limit at 16 and younger. The income phase-out to claim the child credit was increased significantly from ($55,000 single/$110,000 married) under current law to $500,000 for all filers in the final bill.
Major Provisions Affecting Commercial Real Estate Like-Kind Exchanges: the bill retains the current Section 1031 Like Kind Exchange rules for real property. It repeals the use of Section 1031 for personal property, such as art work, auto fleets, heavy equipment, etc.
Carried Interest: the bill requires a 3-year holding period to qualify for current-law (capital gains) treatment.
Cost Recovery (Depreciation): the bill retains the current recovery periods for nonresidential real property (39 years), residential rental property (27.5 years) and qualified improvements (15 years). The bill also replaces separate definitions for qualified Restaurant, Leasehold, and Retail improvements with one definition of Qualified Improvement Property.
Qualified Private Activity Bonds: the bill retains the deductibility of qualified private activity bonds used in constructing affordable housing, local transportation and infrastructure projects and for state and local mortgage bond programs.
Low Income Housing Tax Credit: the bill retains current law. However, a lower corporate rate will negatively impact the value of the credits in the future, and will result in less low-income housing being developed.
Rehabilitation Credit (Historic Tax Credit): the bill repeals the current-law 10% credit for pre-1936 buildings, but retains the current 20% credit for certified historic structures (but modified so the credit is allowable over a 5-year period based on a ratable share (20%) each year.
Provisions Not Included in the Final Bill Rental Income Subject to Self-Employment Tax. The House-introduced bill would have subjected rental income to self-employment taxes. This provision was dropped from the House (and final) bill.
Wow that’s a lot of information and this probably only the tip of the iceberg! Be sure you are in the best position for 2018, meet with your tax professional to strategize.
Information for this article courtesy of the National Association of Realtors