What New Tax Law Means to Muskegon Homeowners
BY NANCY BIERENGA, REALTOR®, E-PRO, ABR, éLAN REALTY, PAST PRESIDENT, WEST MICHIGAN LAKESHORE ASSOCIATION OF REALTORS
Three days before Christmas, President Donald Trump signed the Tax Cuts and Jobs Act into law. What does the new tax law mean to you as a current or future homeowner here in Muskegon County?
I need to start out with a disclaimer: This article is not meant to be a resource for tax advice but instead a resource for basic information concerning only how the changes may impact the real estate market. You should get tax advice from your accountant or tax preparer who will explain how the entire tax code will affect your personal return.
Exclusion of gain on sale of a principal residence. Original Proposal: Owners would need to live in their house for at least five out of the last eight years to claim this exemption. Under the former tax framework, a typical owner, who has lived in their house for at least two years out of the last five years, would pay nothing in capital gain taxes if they sell the house.
The New Tax Code: No change. The “at least two years out of the last five years” requirement is unchanged.
Impact on the Market: None.
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Mortgage Interest Deduction. Original Proposal: Reduce the limit on the mortgage interest deduction (MID) amount from $1,000,000 to $500,000.
The New Tax Code: Reduces limit on deductible mortgage debt to $750,000 for new loans taken out after December 14, 2017. Current loans up to $1 million are grandfathered. Current homeowners would not be affected by the lower cap.
Impact on the Market: Assuming a 20% down payment, this reduction in the MID will impact buyers that are purchasing a home between the prices of $938,000 and $1,250,000. Any home under the lower price is still covered and any home over the higher price was not covered under the former tax code either.
The new cap would also apply to mortgages on second homes. The original House bill wanted to eliminate the deduction on second homes.
The final tax bill also eliminates the deduction for interest on home equity loans. Currently that's allowed on loans up to $100,000, so there’s a possibility that some people will decide to sell rather than upgrade their current home.
What does that mean to the market? Experts disagree. In West Michigan there will probably be a slight impact, though homes on Lake Michigan may be more difficult to sell. Most of us will see no change due to the new law.
State and Local Taxes (SALT). Original Proposal: The elimination of the state and local tax deduction (which includes property taxes).
The New Tax Code: Allows an itemized deduction of up to $10,000 for the total of state and local property taxes and income or sales taxes.
Impact on the Market: Most experts agree that higher taxed regions will be impacted as homeowners in those communities now have a cap on these deductions.
You do have to itemize to use this deduction as you did under the old law, and, with the increase in the standard deduction, it is estimated that there will be many more people choosing the standard deduction over itemizing.
Since most households will see an overall tax cut, and potential buyers are likely to put that saving towards their home, this change will probably not have a significant impact on the housing market.
What does this all mean to you? To know for sure, you should meet with your accountant or financial planner and explore how all the aspects of the new code will impact your family.
Most families consider homeownership an essential part of the American Dream, and don’t purchase a home based solely on the tax advantages. The main reasons they buy a home are personal (they just got married, they are looking for a good place to raise children, they want to be near friends and family, they want to better enjoy their retirement, etc.). This will never change.
Nancy Bierenga, of élan Realty, is past president of the West Michigan Lakeshore Association of REALTORS®, a member of the National, Michigan, and West Michigan Lakeshore Associations of REALTORS®, and the Greater Muskegon Woman's Club. She is an Accredited Buyer's Representative, a Certified e-Pro REALTOR®, and a Certified Fair Housing REALTOR®. She and husband Robert have lived in Muskegon since 1996. Phone Nancy at (231) 730-0887, email Nancy@HousesByNancy.com, stop by élan Realty's office at 4075 Airline Rd., Muskegon or visit the élan Realty on Facebook here.