Trump intends to sign the Tax Cuts and Jobs Act into law before the end of this year. What does it mean for homeowners in New York? Below is analysis from the National Association of Realtors.
Tax Rate Changes
The new law provides generally lower tax rates for all individual tax filers. While this does not mean that every American will pay lower taxes under these changes, some will. The tax rate schedule retains seven brackets with slightly lower marginal rates of 10%, 12%, 22%, 24%, 32%, 35%, and 37%.
The final bill retains the current-law maximum rates on net capital gains (generally, 15% maximum rate but 20% for those in the highest tax bracket; 25% rate on “recapture” of depreciation from real property).
| Current Law | Tax Cuts and Jobs Act | ||
|---|---|---|---|
| 10% | $0 - $19,050 | 10% | $0 - $19,050 |
| 15% | $19,050 - $77,400 | 12% | $19,050 - $77,400 |
| 25% | $77,400 - $156,150 | 22% | $77,400 - $165,000 |
| 28% | $156,150 - $237,950 | 24% | $165,000 - $315,000 |
| 33% | $237,950 - $424,950 | 32% | $315,000 - $400,000 |
| 35% | $424,950 - $480,050 | 35% | $400,000 - $600,000 |
| 39.6% | $480,050+ | 37% | $600,000+ |
Mortgage Interest Deduction
The final bill reduces the limit on deductible mortgage debt to $750,000 for new loans taken out after 12/14/17. 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.
Homeowners may refinance mortgage debts existing on 12/14/17 up to $1 million and still deduct the interest, so long as the new loan does not exceed the amount of the mortgage being refinanced.
The final bill repeals the deduction for interest paid on home equity debt through 12/31/25. Interest is still deductible on home equity loans (or second mortgages) if the proceeds are used to substantially improve the residence.
Interest remains deductible on second homes, but subject to the $1 million / $750,000 limits.
Deduction for State and Local Taxes
The final bill allows an itemized deduction of up to $10,000 for the total of state and local property taxes and income or sales taxes. This $10,000 limit applies for both single and married filers and is not indexed for inflation. The final bill also specifically precludes the deduction of 2018 state and local income taxes prepaid in 2017.
Standard Deduction
The final bill provides a standard deduction of $12,000 for single individuals and $24,000 for joint returns. The new standard deduction is indexed for inflation.
By doubling the standard deduction, Congress has greatly reduced the value of the mortgage interest and property tax deductions as tax incentives for homeownership. Congressional estimates indicate that only 5-8% of filers will now be eligible to claim these deductions by itemizing, meaning there will be no tax differential between renting and owning for more than 90% of taxpayers.
Repeal of Personal Exemptions
Under the prior law, tax filers could deduct $4,150 in 2018 for the filer and his or her spouse, if any, and for each dependent. These exemptions have been repealed in the new law.
This change alone greatly mitigates (and in some cases entirely eliminates) the positive aspects of the higher standard deduction.
Source: NAR – National Association of Realtors