There is still a possibility that the tax reform bill will get passed before the end of the year. There are several parts of this tax plan that will impact homeownership. If you are thinking about buying or selling, here are a few things that you should know about the 2017 tax reform effect on Arizona homeowners.
Capital Gains Taxes on Selling a Home
Under current law, if you lived in your home as a primary residence for 2 out of the last 5 years, then your earnings are exempt from capital gains tax. Those filing single on their taxes receive an exemption of $250,000 and married couples receive $500,000. The exemption is for profit on the sale of your home, not the sales price.
Under the proposed changes, you would be required to live in your home longer, 5 out of the last 8 years, in order to avoid paying capital gains tax. The tax rate for 2017 is either 15% or 20%, depending on the tax bracket you’re in. This is an important change with direct impact on Arizona sellers. If you need the equity in your existing home to put towards the purchase of a new home, paying capital gains taxes would reduce the amount of money available for that purchase. It’s therefore something that you would need to consider before deciding when to sell and buy.
Property Tax Limit
Another possible change relates to property taxes. 2017 tax reform would limit the amount of deductible property taxes to $10,000 per year. This means that if you pay more than that each year, you would not gain full benefit from that expense. Fortunately, taxes for the average single family home in Arizona are below that amount, so this will not impact every homeowner.
Mortgage Interest Deduction Cap
One of the most important benefits of buying a home is the ability to deduct the interest that you pay on your home loan on your federal taxes. This allows homeowners to itemize deductions rather than taking the standard deduction. By itemizing deductions, you may also be able to claim other types of deductions.
2017 tax reform would limit the amount of mortgage interest that Arizona homeowners may deduct. Only interest against $500,000 of your mortgage balance would be deductible. The median price of single family homes in Arizona are below that, so this may not affect the average Arizona homeowner.
Summary of 2017 Tax Reform Effect on Arizona Homeowners
As you can see from the information above, there are changes that would impact both buyers and sellers. However, it may not necessarily effect your home buying or selling plans, depending on your price point, income, etc. It’s also important to note that everyone’s tax situation is different. Consult with a tax professional to learn if any of this would directly impact you, and if so, by how much. The above merely summarizes the proposed changes in tax code and is not legal or tax advice.
Real Estate Advice
If you are thinking about buying or selling a home, there’s a lot to consider. How much is your home worth? What are typical selling expenses? How much would you net from the sale. How much can you spend on your new home? What neighborhoods and home features are in your price range? These are all questions that I can help you answer. Give me a call today to schedule an appointment.