NOTE: This post is intended to be general information only. It is not intended to be tax advice. You should always seek professional guidance from a qualified tax professional for your own personal situation.

The new tax law is now in place. If you own a home, or are thinking about buying or selling a home, there are some new issues that you should be aware of.

The general consensus is that this new bill was a “tax cut.” Depending upon your personal circumstances, that may or may not be true. That’s why, especially this year, you should seek professional advice from a qualified tax professional.

Mortgage interest, state and local tax deductions are still technically available, but have been significantly impacted by the tax law changes.

The Personal Exemption, The Standard & Itemized Deductions

Under the prior law, tax filers could deduct $4,150 in 2018 for the filer and his or her spouse, if any, and for each dependent. These exemptions have been repealed in the new law. This is for pre-Adjusted Gross Income (AGI), that income you made before you take any deductions.

The standard deduction has been increased to $12,000 for single filers and $24,000 for married filers who file jointly. Going forward, you will have to have itemized deductions totaling more than those two limits. The main thing to keep in mind is that the increase in the Standard Deduction means that the total of your deductions that you itemized in previous years will be folded into those totals and must exceed them for you to itemized going forward. This may have a major impact on your home ownership planning.

Home Mortgage Deduction

The home mortgage deduction has been nominally preserved, with some limitations for mortgages $750,000 and above. You may refinance a mortgage that was in place on 12/14/2017 and still deduct the interest, however, it must be for the same amount (no cash out refinancing).

Home equity lines of credit were also significantly impacted. The new law retains the deduction of interest but only if the funds are used for home improvement and for no other purpose. For example you cannot pay your child’s college tuition with home equity funds.

State & Local Income Taxes

The final 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. Arizona, being a low property tax state compared to California or New York, is not impacted as significantly by this provision. For most families the limit will not have much of an effect. Again however, the increase in the standard deduction will probably have a big impact on your ability to itemize in the first place.

Changes in Home Values

There are as many opinions about the law’s impact on home values as there are people expressing them. But there is broad consensus on a few items.

Impact of the state and local tax limitations – Lawrence Yun, chief economist with the National Association of Realtors recently opined, “We expect some price declines in California, in New Jersey, in New York, Connecticut … in the 5 percent range. Ninety-five percent of homeowners and home buyers are not impacted by mortgage interest deduction limit of $750,000 or the property tax deduction of $10,000.”

There is one area of near-unanimous agreement: interest rates. “Mortgage rates could rise because we are seeing larger deficits over the horizon” due to the tax law, NAR’s Yun said. According to the Congressional Budget Office, the changes will generate roughly $1.4 Billion in additional deficits over the next decade. “The staff of the Joint Committee on Taxation (JCT) estimates that enacting the legislation would reduce revenues by about $1,633 billion and decrease outlays by $219 billion over the 2018-2027 period, leading to an increase in the deficit of $1,414 billion over the next 10 years.” You can see the full report here.

In the end, the decision to buy or sell a home is an intensely personal one. It is rarely (and shouldn’t be) driven by environmental economic factors. Your home is your sanctuary, a place to raise a family or escape the stress of the world. Your personal financial situation is much more important to a final decision than external forces. A good lender and a Realtor® who understands your needs are much more valuable to your decision-making process than a copy of the Wall Street Journal.

There are a great many other changes that may affect your personal situation such as the changes in the tax brackets and rates which is why it is always advisable to seek the guidance of a qualified tax professional before making important decisions that affect your overall financial circumstances.

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