In my November blog, I outlined the key components impacting the real estate market under each of the proposed House & Senate plans for tax reform. Since that time the tax reform bill has been signed into law and this blog will summarize what actually made it into the final bill relevant to real estate buyers and sellers.
The bill has been characterized as the most significant overhaul of the IRS Tax Code in more than thirty years. The administrations stated goals were to grow the economy, raise wages and promote economic development. While the corporate rate reduction and international reforms are permanent, the tax bill sunsets nearly all individual tax provisions at the end of 2025.
Some of the key changes in the new $1.5 Trillion Tax Bill include the following
- Corporate tax rate has been reduced from 35% to 21%.
- The multi-bracketed structure for individual tax rates has not changed but provides for slightly smaller reductions in tax rate paid.
- The standard deduction has been increased from $6,350 and $12,700 to $12,000 and $24,000 for single filers and married couples, respectively.
- The Estate Tax exemption has been raised from $5M to $10M.
- The 1031 Exchanges have been retained but only for real property transfers. The preservation of 1031 tax-deferred exchanges for real property has been well received by the real estate industry.
- Owners of pass-thru entities and sole proprietors are now able to deduct up to 20% of domestic qualified business income. This deduction expires on 12/31/2025. This favorable treatment of pass-thru income should encourage additional capital to enter the commercial real estate market.
- State and local taxes will be capped at $10K for any combination of state, local income and property taxes. With Florida being a non-income tax state, we likely will see more people moving here, especially from the Northeast including New York and New Jersey where the $10K cap will be felt the most.
- Mortgage interest on up to two personal residences can be deducted for mortgage debt originating after 12/15/2017 but only up to $750K in debt thru 2025. Any debt incurred prior to 12/15/2017 will be covered by the previous law. Even if refinanced later, the debt would continue to be covered by the previous law’s $1M cap. With existing mortgages basically grandfathered in with the lower deduction applying to new loans may result in less people moving as there is less incentive to move.
- Taxpayers cannot deduct interest on home equity debt thru 2025. The previous bill allowed deduction of interest payments up to $100K of home equity debt.
- As with the previous bill, taxpayers can exclude up to $500K for couples or $250K for single filer from capital gains taxation when they sell their primary home provided they have lived in the home for at least two of the past five years.
The bottom line for these changes on real estate and how they will impact you and your housing options will depend on where you live, how much you spend (or can spend) on your home and how much the new provisions of the bill decreases (or increases) your overall tax burden. With regards to Florida, the tax reform should have a positive effect on real estate if the economy improves generating increased employment and better wages which fuels real estate.
Should you have any questions on how the new tax bill may impact real estate in Florida or be interested in selling or buying in South Florida and not currently working with a real estate agent, please do not hesitate to contact me at 954-547-9483 or JayKenney@SFPropertyTeam.com