Mortgage Interest Deduction
Mortgage interest is now only deductible on the first $750,000 of acquisition debt on primary and secondary residences. However, there is a grandfather clause that allows all previously purchased residences to continue deducting their interest on up to $1,000,000 of debt.
Interest on home equity debt is no longer deductible, unless the proceeds are used to improve rentals. Home equity debt includes refinances on your primary or secondary residences as well as HELOCs.
According to the Pew Charitable Trusts, only about a fifth of American tax filers (21.5%) claimed the mortgage interest deduction, netting an average $8,612 in tax deductions in 2015. According to real estate information firm Attom Data Solutions, only about 5.4% of all of the mortgages made this year were for more than $500,000. Thus, the impact is not as significant as you would think it would be.
The biggest winners will be the middle class which live in a moderately priced homes. The biggest losers are going to be high priced homes with jumbo loans in excess of $750,000.
The standard deduction will now be $12,000 for those filing single, and $24,000 for those who are married and filing joint. Personal exemptions have been eliminated.
AMT (Alternative Minimum Tax)
The AMT’s exemption amounts increased to $109,400 for married filing joint and $70,300 for all other taxpayers. Additionally, the phase out thresholds are increased to $1,000,000 for married taxpayers filing a joint return, and $500,000 for all other taxpayers (excluding estates and trusts). These amounts are indexed for inflation.
The new law increases bonus depreciation from 50% to 100% for assets with useful lives of less than 20 years. For example, If you purchase personal property (carpet, appliances, tools, equipment, etc.) or if you make land improvements (landscaping, driveways, parking, etc.), you can now immediately write off the entire cost of these assets. However, you cannot write off the cost of buying a rental property and the property’s key components because they have useful lives of 27.5 years.
It is important to note that this is bonus depreciation. That means that when you sell the assets, you will pay depreciation recapture tax. Keep that in mind. Bonus depreciation is retroactive to start in September 2017. So if you are making any year-end purchases/improvements, they will be 100% written off.
Lifetime Gift Exclusion
Every year, you are allowed to gift another person $14,000 without having to fill out a gift-tax form. If you gift any one person over $14,000, you must fill out a gift tax form that then reduces your lifetime gift exclusion. That lifetime exclusion has been increased to $10,000,000 and will be indexed for inflation. This is on a per-person basis and will reduce the number of estates subject to federal estate taxes.
Section 121 Exclusion
This is commonly referred to as the $250,000 ($500,000 if married) exclusion on gain from the sale of a qualified residence. In order to claim the exclusion, you must have lived in the property for the past two of five years.
In the Real Estate Market?
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