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What the Tax Cuts Reform Means to Homeowners

As you may be considering a purchase  and sale in the year 2018, or simply question the impact of the New Tax Reform called  the "Tax Cuts and Jobs Act”, below are a few highlights of how the new law may affect homeowners in their 2019 filing:

  • It reduces the mortgage interest deduction limit to $750,000 for new loans taken out after 12/14/2017. Current loans of up to $1 million are grandfathered and are not subject to the new $750,000 cap. Neither limit is indexed for inflation.

  • It eliminates the home equity deduction

  • It retains current law treatment of capital gains from home sales. The 1031 Like Kind Exchange remains as well as the exclusion of gain on the sale of a primary residence

  • It doubles the standard deduction (to $24,000 for married couples filing jointly), reducing the tax differential between renting and owning for more than 90% of tax payers.

  • It limits the deduction for state and local income tax (SALT), real property tax, and sales tax (in the aggregate) to a maximum amount of $10,000. This $10,000 limit applies for both single and married filers and is not indexed for inflation.

  • It preserves mortgage revenue bonds and Mortgage Credit Certificates

  • It does not reinstate the deduction for mortgage insurance premiums

As a result of the changes made, The National Association of Realtors is now projecting a slower growth in home prices of 1-3% in 2018 as low inventories continue to spur price gains. Experts note that a full 70 percent of people don’t itemize their taxes in the first place, so it has no bearing on them. With a larger standard deduction, that 70 percent is expected to increase even higher. 70-80% of Americans are expected to have more money in their pocket.  Those changes will affect more those in high-earning states such as California, New York or here in Massachusetts, making $200K-$500K a year, but those states are also those that are most in demand.

Home ownership remains a pillar of the American Dream, and the demand for housing is at such a high point, and the inventory at such a low point, that the tax reform won't stop it and impact dramatically the real estate market.

Is it a good time for you to sell? ... when the inventory is at a one time low? Cambridge records a 10% drop in sales volume in 2017 for a total of 777 units (vs.859 in 2016). And as of today January 16th, 2018, only 66 properties are listed in Cambridge and Somerville, compared to 332 rentals right now available.

Is it a good time to buy? ... while interest rates are still at a low point (+- 4% for 30 yr fixed) yet expected to climb this year.

I remain available to discuss this further with you and help you determine the best course of actions. Email or call 857 204 9872.

Thank you,
Sandrine Deschaux, RE/MAX Destiny Cambridge

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