New real estate laws for 2018: What agents should expect

by Jason Porterfield

The tax cut

On a national level, the federal tax cuts that were recently passed into law will likely have an impact on the housing market on several fronts. Some changes that were originally attached to the bill as it was first passed in the U.S. House of Representatives were later modified so that the impact on homebuyers will be less severe than initially expected. According to the National Association of Realtors, exclusions for capital gains on the sale of a home that were originally slated for elimination will remain, along with the like-kind exchange of real estate property.

NAR expects prices to increase slowly through 2018, at a rate of 1 percent to 3 percent, due to low inventory. However, the association also warns that the legislation may lead to price declines in some high-cost, high-tax areas.

In the final bill, the limit on deductible mortgage interest debt has been cut from $1 million to $750,000. The version of the bill originally passed by the House would have capped the mortgage interest debt limit at $500,000. Mortgage interest deductions also would have been completely eliminated for second homes under the original bill. They have been left in place in the final version.

“The bill keeps the mortgage interest deduction in place, for both the first and second homes, with a mortgage limit of $750,000 for each new loan taken out after December 14, 2017,” Petermann-Williams says. “Current loans of up to $1 million are grandfathered and are not subject to the new law. The bill also keeps deductions in place for state and local income taxes and property taxes, but limits the two deductions together to $10,000, an amount that will mostly hurt homeowners in higher tax states. In a win for agents, the bill keeps currently in place the capital gains exemptions on the sale of a home. The earlier version of the bill would have made that exemption harder to take and added limits on higher-income households.”

The original version of the bill also would have completely eliminated the deduction for state and local property taxes. Instead, the final version of the bill allows homeowners to take an itemized deduction of up to $10,000.

Standard deductions will change under the bill. For single filers, it will jump to $12,000 and to $24,000 for those filing jointly.

“By doubling the standard deduction, Congress has greatly reduced the value of the mortgage interest and property tax deductions as tax incentives for homeownership,” NAR states in a document explaining the changes. “Congressional estimates indicate that only 5 percent to 8 percent of filers will now be eligible to claim these deductions by itemizing, meaning there will be no tax differential between renting and owning for more than 90 percent of taxpayers.”

The bill eliminates personal exemptions in a change that NAR declares “greatly mitigates (and in some cases entirely eliminates) the positive aspects of the higher standard deduction.”

Real estate professionals will likely be able to benefit from an up-front 20 percent deduction for business income, so long as their taxable income falls below $157,500.

Petermann-Williams supports the corporate tax cut and believes that it will help stimulate the economy, resulting in more growth and reduce the incentive for corporations to move their cash offshore. The bill significantly reduces the effective rate of tax on business income earned by independent contractors and income received from pass-through entities. This change will lower the taxes of many real estate professionals.

“I’m hoping that the corporate tax deduction will stimulate our economy which will allow business to hire more employees, relocate employees and pass the savings on to higher salaries which will stimulate the real estate industry,” she says. “We will all just have to sit back and watch to see how all of this prevails.”

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