Many folks have been wondering how the new tax laws are going to affect real estate. Below is a list of the major provisions related directly to real estate. Please remember, this is an abbreviated list of the tax rule changes. I found this summary of the new or changed rules written by Mark O’Toole, to be informative and relevant as we all head into a new era.
1. If you take out a new mortgage, you will only be allowed to deduct the interest on debt up to $750,000, down from $1 million today. Keep in mind that homeowners who already have a mortgage will not be affected by the change.
2. You will no longer be able to deduct all state and local property taxes plus income or sales taxes; instead, the legislation allows individuals to deduct up to $10,000 in property taxes and state and local income or sales taxes.
3. You will still be able to exclude up to $500,000 (or $250,000 for single filers) from capital gains when you sell your primary home, if you’ve lived there for two of the past five years.
4. Interest is still deductible on home equity loans (or second mortgages) if the proceeds are used to substantially improve the residence. The 1st and 2nd or HELOC combined to a max loan amount of $750,000 for new loans.
5. Under the new law, real estate investors get a potentially large tax break they didn’t have before. Owners of investment property could get a federal tax deduction of up to 20 percent of their net rental income.
6. Investment property owners will continue to be able to defer capital gain taxes using 1031 tax-deferred exchanges which have been in the tax code since 1921.
7. Investment property owners will still be able to write off expenses on their properties on Schedule E the same as before (interest, insurance, HOA, property taxes, etc.).
If you have any questions or need clarification, please seek the advice of a licensed Enrolled Agent (EA), or Certified Public Accountant (CPA).
If you have questions about obtaining a hard money loan or becoming a hard money investor, please call us at Cushner Capital Group at (760) 845-9035
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