I just got off the phone with a longtime investor client inquiring about how the tax reform would impact him.
His first question was in regards to changes in deductibility of property taxes on investment properties (no change that I know of for investment properties.)
The second question was in regards to the same on primary residences (there is a new $10,000 limit.)
For his personal home he was thinking about pre-paying the real estate taxes for 2018 now in 2017 to get the full deduction and current tax rates. With the new rules not having been passed yet it is hard to know what steps make sense or what to advise (Business Insider does recommend prepaying in certain cases. ) But, it is clear that a whole new set of tax planning strategies will surface in the remaining days of 2017 and into 2018.
So, what are some of the changes to the tax code that could impact homeowners and real estate investors ?
Lets start with the primary residence rules first:
- There is a new limit on deductions for local and state taxes. You are now allowed a $10,000 maximum deduction (that is for local real estate taxes, state and local taxes and sales tax combined…)
- The interest on home equity loans is eliminated. Currently that interest is deductible in most instances on mortgages up to $100,000. Unclear if it still applies if used to improve your home.
- The maximum deductible mortgage amount has changed from $1,000,000 to $750,000 for new mortgages (after December 15, 2017.)
- When you sell a primary home things remain the same. The live-in requirement also stays the same (2 out of the last 5 years.)
- Second home deductions remain.
- The standard deduction overall has been doubled to $12,200 for individuals and $24,400 for couples. This will make the mortgage deduction and the $10,000 limit on local taxes apply to fewer people overall.
Now, in regards to investment properties I believe the rules remain the same if they are owned by you personally or in single member LLCs. If they are held in a corporation there are many new tax changes that could impact you.
I am not a tax advisor and I have not read the text of the tax reform. Please consult a tax professional to see how the changes affect you.
