Real Estate by Nick Abbadessa
Nick Abbadessa

How does the new tax law impact property owners?

tax law real estate
In a simple statement, if you’re a real estate investor…this is great news for you; and if you’re not, the tax law may be appear more frightening than it really is. Take note however, I’m a Realtor and not a tax advisor. Therefore, please consult with a tax advisor, as everyone’s situation is a little different. However, as a real estate expert, I do see the new tax laws providing benefits for the real estate industry.

Mortgage interest deduction is limited

First off, any mortgages taken out after December 15, 2017 will allow interest to be deducted on mortgages worth up to $750,000 as opposed to the previous $1,000,000 limit. However, those who took out mortgages prior to this date are grandfathered into the $1,000,000 limit.

Cap on State and Local Taxes

Whereas previously all state and local property taxes were deductible, the new tax law caps deductions (on state and local tax, a combination of income tax, and real estate or sales tax) at $10,000.

Standard Deductions Increase

The standard deduction for taxpayers has doubled to $12,000 for individuals and $24,000 for joint filers, influencing taxpayers to take standard deductions as opposed to itemizing their filings. That said, while on the surface it appears homeowners will face more challenges when it comes to deducting their mortgages and property taxes, the fact is you should also consider the positive factors of homeownership, such as continuing to build wealth through equity and appreciation. Additionally, for this, experts are forecasting  that an increase in retired and semiretired homeowners living in pricey areas will be placing their homes on the market.

Housing Prices

Economists and housing experts predict that although the increase in home prices will slow down, particularly in our luxury neighborhoods, the values will not decline, thus reinforcing our strong economy and the effects of having few houses on the market. This can be perceived as a win-win for buyers and sellers. Again, the upside for sellers is that values are not expected to decrease. For buyers on the other hand, this is an opportunity to jump in while home prices are not increasing as quickly as they have been in the past.

Lowering Taxes on Pass-Through Businesses

Under the new law, there is also a deduction of 20% for qualified business income for pass-through businesses. If you are not familiar with what pass-through businesses are, such as partnerships, S-corporations, and limited liability companies, they are corporate entities allowing business income to “pass-through” to the owner, thereby paying a personal income as opposed to a business rate. Therefore, owners now get to deduct 20% of their pass-through income and only tax 80%. They will also be taxed 29.6% on income as opposed to the traditional 37%, so real estate investors who buy under LLCs can see some serious savings. Thereby, we should probably expect an increase in tax payers trying to establish pass-through businesses to take advantage of these deductions.

Additional Deductions

Taxpayers can also deduct 20% of income received as qualified Real Estate Investment Trust dividends for additional savings. Also, like-kind exchanges of property (AKA 1031 exchanges) are still allowed, thereby, investors will be allowed to sell a property and buy another by deferring paying tax on gains from the original property. 

In conclusion, while some are excited for the changes, some are frightened, and some are confused, it’s important to state that the new tax laws are just a piece of the puzzle. For many, they purchase homes for the long run, at least five years, and a lot can happen in five years. Furthermore, we’re just in the start of 2018. Therefore, there’s still the possibility of amendments to the laws.

To view the latest homes on the market this year, visit my listings below.La Verne Real Estate

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About Nick Abbadessa

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Nick Abbadessa

Realtor, BA, Cert. Luxury Home Specialist

626-269-2751626-269-2751 main

RE/MAX Masters Realty

1030 Bonita Ave. La Verne, CA 91750 | BRE#01398872 |Office BRE#01064901



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