The House and Senate recently voted to pass the most sweeping tax legislation in decades. President Trump signed it into law just prior to the holiday weekend, with the changes taking effect in time for most HR and Payroll departments to adjust tax withholdings as soon as February.
So what does the latest version of the bill mean for Norther Virginia residents and homeowners? There are many changes, but here are a few of particular interest in our area:
East Coast homeowners can breathe a sigh of relief that the mortgage deduction survived the conference negotiations. While the higher standard deduction would have replaced the mortgage deduction, for those with large mortgages or living in high tax areas, the standard deduction of $12,000 for individuals and $24,000 for joint filers may have been less than the amount they could itemize before the tax changes.
In the version President Trump signed, homeowners can continue to deduct mortgage interest on a total mortgage debt of $1 million on first and second homes. However, the mortgage must already be in effect prior to December 15, 2017. For new mortgages, the cap is $750,000.
To deduct the interest, all eligible deductions must exceed the new standard deduction.
Home Seller Profit Exclusions
Previous versions of the tax bill had included a provision to tighten the requirements to exclude profit on the sale of a primary residence. In current tax law, home sellers can exclude up to $250,000 in profit on the sale ($500,000 for joint sellers), as long as they lived in the home at least two of the previous five years. Proposed changes would have increased the requirement to five of the past eight years, with a phase out of the exclusion for higher income homeowners. Lawmakers struck this changes in the final version of the bill, giving homeowners more flexibility.
Other deductions that will still be available to Northern Virginia residents include the deductions for state and local taxes and charitable contributions.
State and local taxes paid, including property taxes, may be deducted, up to a maximum of $10,000 for both single and joint filers. You can deduct charitable contributions up to $3,000. In order to itemize, all deductions added together must exceed the standard deduction.
From a practical perspective, single filers have a little advantage in areas with high-property values and higher property taxes. If individual filers have the maximum in state, local, and property taxes ($10,000), and donate $3,000 to charity, they will have already met the threshold to itemize deductions ($12,000, or the amount of the standard deduction).
For those filing jointly, even if they meet the cap for state/local taxes and charitable contributions, they will still have to claim an additional $11,000 in deductible expenses, such as mortgage interest in order to itemize. If they don’t exceed the standard deduction of $24,000, then they will have to take the standard deduction.
There are too many details to cover them all here. However, here are a few other provisions that may be of interest to Northern Virginia residents:
- Tuition rebates for graduate students will not be taxed, as originally anticipated. However, the increase in the standard deduction may impact charitable contributions to universities. Private universities, such as Marymount or Georgetown, will pay an excise tax on endowments over $500,000. This may reduce the availability of funds for student financial aid, research, and faculty salaries.
- The bill opens offshore drilling in the Arctic National Wildlife Refuge, and also schedules the sale of 7 million barrel of oil from the Strategic Petroleum Reserve to raise funds to offset the other tax breaks.
- Good news for alternative energy industry advocates: Plans to weaken tax credits for wind and solar did not make it into the final version of the bill.
- The child tax credit increased to $2000/child, but phases out after $400,000 in annual income.
More details about the impacts to Northern Virginia homeowners and residents may become clearer as experts have an opportunity to evaluate the whole bill.
The Bottom Line
There are a lot of details in the new tax bill that we just can’t anticipate until tax filing begins for the 2018 tax year. There will be people who benefit and people who don’t, based on individual circumstances and tax situations. You should consult a tax advisor if you are concerned about how the new tax changes will impact you.
The Gresh Group can help you find the perfect home for your needs, as well as help you sell your current home. If you have any questions, give me a call at 703-328-3434 or send me an email at Janet@TheGreshGroup.com. We can discuss specific details about your property and what buyers are looking for in your area. I look forward to hearing from you!