The first change you need to be aware of is the requirements of the sale of your principal property. The second is the reduction of the limit on mortgage interest. The third is the elimination of state and local taxes.
Regarding the requirements of the sale of your principal property, the original proposal was that if the property was a homestead property, you would have to live in it for five out of the last eight years in order to avoid paying any capital gains taxes when selling it. That’s been changed so you only have to stay in the home for two out of the previous five years to sell the property without having to pay any capital gains taxes.
This change doesn’t impact you very much if you’re looking to sell your home. If you’re living in the property as part of a married couple, then you have up to $500,000 in gains that you don’t have to pay taxes on. If you’re single, you have up to $250,000 in gains that you don’t have to pay taxes on.
Regarding the reduction of the limit on mortgage interest, previously you could buy a home for up to $1 million and get the mortgage deduction when doing your taxes. They were proposing reducing that sum from $1 million to $500,000, but they agreed that you could reduce the itemized deduction on your mortgage for up to $750,000.
This change will only affect people who are buying homes in a higher price range—primarily those buying over the $750,000 range. However, if you’re buying a home for $1 million and you’re putting down 20% or more, it may not affect you that much. If you’re buying a home that’s more expensive than that, there will probably be tax implications.
Lastly, regarding the deduction of local and state taxes in relation to your property, the original law was to take that away completely so you weren’t allowed to claim that on your taxes. The new change allows you to do so for up to $10,000. Basically, if your taxes are more than that, it will have an effect on you whether you’re buying or selling.
If you have any other questions about these new tax rules and how they affect the real estate market, don’t hesitate to reach out to us. We’d be happy to help you.