{"id":264,"date":"2018-01-08T21:14:07","date_gmt":"2018-01-09T02:14:07","guid":{"rendered":"https:\/\/sierrasothebysrealty.blog\/2018\/01\/08\/2018-tax-bill-real-estate-investment-planning\/"},"modified":"2018-01-08T21:14:07","modified_gmt":"2018-01-09T02:14:07","slug":"2018-tax-bill-real-estate-investment-planning","status":"publish","type":"post","link":"https:\/\/www.sothebysrealty.com\/sierrasir\/blog\/2018\/01\/08\/2018-tax-bill-real-estate-investment-planning\/","title":{"rendered":"2018 TAX BILL & REAL ESTATE INVESTMENT PLANNING"},"content":{"rendered":"

Content by Ephraim Schwartz & Teresa O\u2019Dette. Consult your tax advisor to better understand how these changes to the 2018 tax code affect your personal situation.\u00a0<\/em><\/p>\n

Every tax return must either: Itemize deductions, or take a standard deduction. It must be one or the other and cannot be a combination. Mortgage interest deduction = Itemizing. Here\u2019s what every real estate owner should understand regarding whether to deduct their mortgage interest, OR take the standard deduction:<\/p>\n

MORTGAGE INTEREST DEDUCTION<\/strong>
\n\u2022 Mortgage interest deduction<\/strong> is reduced from loan amounts up to $1,000,0000, to $750,000. This is for the primary residence + one vacation home, combined. $1.0M limit is grandfathered for:
\noMortgage debt incurred on, or before, Dec. 15, 2017.
\no Mortgage debt incurred on, or before, Apr. 1, 2018, where the purchase contract was signed prior to Dec. 16, 2017 to close prior to Jan. 1, 2018.
\no Rate & Term (non-cash out) Refinances of mortgage debt originally incurred prior to Dec. 15, 2017.
\n\u2022 Vacation Home mortgage interest<\/strong> can still be deducted if a primary residence mortgage is less than the $750k limit. If the two (primary & 2nd home) mortgages combined exceed the $750k, then only a portion of the vacation home interest would be deductible. Ex. Primary residence mortgage balance of $500k, and a vacation home mortgage balance of $500k, then all of the primary residence mortgage interest will be deductible, and half of the vacation home mortgage interest will be deductible.
\n\u2022 HELOC (Home Equity Line of Credit)<\/strong> debt interest can only be deducted if it was used for either; purchase, building, or improving the property.
\n\u2022 Cash-out (home equity) mortgage<\/strong> debt is no longer tax deductible. The previous limit was $100k.<\/p>\n

STANDARD DEDUCTION<\/strong>
\nStandard deduction is increasing:
\n\u2022 Individuals: increase from $6,350 \u2192 $12k
\n\u2022 Married: increase from $12k \u2192 $24k
\n\u2022 Head of Household: is now $18k<\/p>\n

The increase to the standard deduction combined with a decrease to mortgage interest deduction means the standard deduction will be the right decision for more people nationwide. This will impact the tax savings for some future purchases, but not all. It\u2019s true that first time home buyers of less expensive homes will be more likely to take the standard deduction, than make use of their mortgage interest deduction, going forward. However, in our high cost market, many individuals will still benefit from itemizing their mortgage interest deduction because their mortgage interest is still larger than the standard deduction. So, in addition to other reasons to invest in real estate, owning real estate will continue to be a tax advantage for most in this area.<\/p>\n

REAL ESTATE INCOME DEDUCTION \u2013 NEW<\/strong>
\nIncome from real estate can be deducted by 20%<\/strong> under the new law.<\/p>\n

This deduction will be a new benefit to some vacation & investment property owners in our market. The scenario that will benefit is when the loan amount on a primary residence alone maxes out the allowable mortgage interest deduction, as a 2nd home mortgage interest would not be deductible. Under the new law 20% of rental income is a new deducted on a vacation\/investment property.<\/p>\n

Example:<\/em><\/p>\n

\"\"<\/a><\/p>\n

Notice both the tax bracket and taxable income change.<\/em><\/p>\n

MARGINAL TAX BRACKETS<\/strong><\/p>\n

\"\"<\/a><\/p>\n

PROPERTY TAX DEDUCTION<\/strong>
\nReal estate taxes can now only be deducted up to $10,000. Previously, all property taxes could be deducted at no limit. Property taxes remain fully deductible for businesses or for-profit real estate reported on schedule E of tax returns.<\/p>\n

Consider the combination of 20% deduction of rental income + the cap of state & local taxes: Less expensive homes & investment properties with good rental income may benefit, meanwhile more expensive homes not on schedule E are more likely to see an increased cost of homeownership.<\/p>\n

GIFT TAXES<\/strong>
\n\u2022 Annual:<\/strong>
\no 2017 = $14,000\/person\/year
\no 2018 = $15,000\/person\/year
\n\u2022 Lifetime<\/strong>
\no 2017 = $5,490,000\/person
\no 2018 = $11,200,000\/person
\n*Portability between married couples, so actually ~$22.4M lifetime Gift Tax exemption between couples.
\nThe majority of home buyers will not have to worry about their family paying gift taxes for any gifted down payment going forward.<\/p>\n

CAPITAL GAINS EXCLUSION FOR PRIMARY RESIDENCE<\/strong>
\nRemains unchanged. If a property has been the primary residence for any 2 years within the most recent 5 yrs, then capital gains are excluded from tax up to:
\n\u2022 $250,000 for individual
\n\u2022 $500,000 for joint filers<\/p>\n

HOME IMPROVEMENTS AS ACQUISITION INDEBTEDNESS<\/strong>
\n\u2022 Substantial Improvement<\/strong>
\no Adds to the value of the home
\no Prolongs the home\u2019s useful life, or
\no Adapts the home to new uses
\n\u2022 24 Month Look Back Period
\n\u2022 12 Month Look Forward Period<\/p>\n

Content by Ephraim@omglenders.com, Teresa@omglenders.com<\/em>
\n 530-581-5089<\/em><\/p>\n

\"HorzKW\"<\/a><\/p>\n

775.832.4900
\n<\/strong>\u00a0SierraSothebysRealty.com<\/a><\/strong><\/p>\n

Nine\u00a0Lake Tahoe Real Estate Office Locations:
\nIncline Village | Northstar Village | South Lake Tahoe | Squaw Valley | Tahoe City Gallery | Tahoe Donner \u00a0| Downtown Truckee | Tahoe City Lakeside | Stateline\/Village at Heavenly |\u00a0RENO’s SUMMIT MALL –\u00a0FEBRUARY 2018<\/strong><\/p>\n

Find us on\u00a0Facebook<\/a>\u00a0|\u00a0Linked In<\/a>\u00a0|\u00a0Twitter<\/a>\u00a0|\u00a0Pinterest<\/a>\u00a0|\u00a0Instagram<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

Content by Ephraim Schwartz & Teresa O\u2019Dette. Consult your tax advisor to better understand how these changes to the 2018 tax code affect your personal situation.\u00a0 Every tax return must either: Itemize deductions, or take a standard deduction. It must be one or the other and cannot be a combination. Mortgage interest deduction = Itemizing. […]<\/p>\n","protected":false},"author":248546753,"featured_media":1868,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"advanced_seo_description":"","jetpack_seo_html_title":"","jetpack_seo_noindex":false,"jetpack_seo_schema_type":"","_jetpack_newsletter_access":"","_jetpack_dont_email_post_to_subs":false,"_jetpack_newsletter_tier_id":0,"_jetpack_memberships_contains_paywalled_content":false,"_wpcom_ai_launchpad_first_post":false,"_jetpack_feature_clip_id":0,"_jetpack_memberships_contains_paid_content":false,"footnotes":"","jetpack_publicize_message":"{title}\n\n{excerpt}\n\n{url}","jetpack_publicize_feature_enabled":true,"jetpack_social_post_already_shared":true,"jetpack_social_options":{"image_generator_settings":{"template":"highway","default_image_id":0,"font":"","enabled":false},"version":2},"_wpas_customize_per_network":false,"jetpack_post_was_ever_published":false},"categories":[1369],"tags":[],"class_list":["post-264","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-tahoe-real-estate-news"],"jetpack_publicize_connections":[],"jetpack_likes_enabled":true,"jetpack_sharing_enabled":true,"jetpack_shortlink":"https:\/\/wp.me\/pfNAru-4g","jetpack-related-posts":[],"jetpack_featured_media_url":"https:\/\/www.sothebysrealty.com\/sierrasir\/blog\/wp-content\/uploads\/2018\/01\/Tax-Reform.jpg","_links":{"self":[{"href":"https:\/\/www.sothebysrealty.com\/sierrasir\/blog\/wp-json\/wp\/v2\/posts\/264","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.sothebysrealty.com\/sierrasir\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.sothebysrealty.com\/sierrasir\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.sothebysrealty.com\/sierrasir\/blog\/wp-json\/wp\/v2\/users\/248546753"}],"replies":[{"embeddable":true,"href":"https:\/\/www.sothebysrealty.com\/sierrasir\/blog\/wp-json\/wp\/v2\/comments?post=264"}],"version-history":[{"count":0,"href":"https:\/\/www.sothebysrealty.com\/sierrasir\/blog\/wp-json\/wp\/v2\/posts\/264\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.sothebysrealty.com\/sierrasir\/blog\/wp-json\/wp\/v2\/media\/1868"}],"wp:attachment":[{"href":"https:\/\/www.sothebysrealty.com\/sierrasir\/blog\/wp-json\/wp\/v2\/media?parent=264"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.sothebysrealty.com\/sierrasir\/blog\/wp-json\/wp\/v2\/categories?post=264"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.sothebysrealty.com\/sierrasir\/blog\/wp-json\/wp\/v2\/tags?post=264"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}