analyze-your-taxes

The new tax laws will apply to our 2018 tax filings.

The laws will not change the existing exemption for home sellers.  But they could significantly reduce the number of taxpayers who will use the mortgage interest deduction.

Home Seller Exemption

The exemption for home sellers will not change in 2018.

The rule states that married couples filing jointly can exclude $500,000 of profit on the sale of a primary home from taxes.  For single filers, the exemption is $250,000 of profit.

To qualify for this exemption, the seller must have “used the residence as [his] principal residence for periods aggregating 2 years or more during the 5-year period ending on the date of the sale.”

The Wall Street Journal gives the following example:

Say that John and Jane bought a home many years ago for $120,000 and later made improvements that added $100,000 to its cost.  This year, they sell the home for $600,000.  The gain, or profit, on the sale is $380,000.  All of it would be exempt from capital-gains tax due tot he $500,000.

Mortgage Interest Deduction

The standard deduct for taxpayers who file jointly will nearly double under the new laws–from $12,000 to $24,000.

Consequently, far more taxpayers will opt for the $24,000 standard deduction rather than deducting their mortgage interest on Schedule A.

WSJ estimates that the number of taxpayers who deduct their mortgage interest on Schedule A will drop from 40 million to 16 million in 2018.

Again, WSJ gives an example:

If a married couple’s mortgage-interest, state taxes and charitable contributions average about $15,000 per year, they benefited from listing these deductions on Schedule A in prior years.  For 2018 they won’t, because it is to their advantage to take the $24,000 standard deduction instead.

If you have any questions about real estate law, please contact me at justin@jrmccarthy.com.