How the New Tax Bill Affects Homeowners and Real Estate Investors

When Congress passed the Tax Cuts and Jobs Act at the end of 2017, it was supposed to be a cause for celebration.

Instead, it’s become a cause of major confusion for homeowners and real estate investors alike. As you’re gearing up to do your taxes, what are the major changes that you need to know about?

Read on to find out how the new tax bill is going to impact you this tax season.

Standard Deduction Increase

When Congress passed the new tax bill, they touted it as a way to simplify the tax code. That’s only partly true.

What they did was to increase the standard deduction amount to $12,000 for single filers and $24,000 for those married or joint filers.

That’s doubling the previous deduction. What that does for a lot of taxpayers is that they can now take the standard deduction instead of itemizing their deductions.

An unintended consequence of that change is that there’s less incentive for people to become homeowners.

SALT Tax Deduction Changes

Perhaps the biggest change that homeowners and real estate investors will notice on their taxes will be the amount of state and local taxes they can deduct from their federal tax bill. This also includes property taxes.

You used to be able to deduct these taxes without any limit. This year, you can only deduct up to $10,000 in state and local taxes.

This will be most noticeable if you live in a high-tax state like New York, New Jersey, Connecticut, or California.

Changes in the Corporate Tax Rate

Real estate investors who own their properties in a corporation should have a big reason to rejoice. The corporate tax rate dropped from 35% to 21%. That can result in a tremendous amount of money for investors.

You can do some basic real estate accounting and figure out how that savings will impact your investments. If you’re not a corporation, you might want to think about forming one for your investment properties.

1031 Exchange Changes

For real estate investors, there were a few changes to 1031 exchanges. This won’t impact most investors, but it is something to be aware of.

According to the IRS, 1031 exchanges are now limited to like-kind property exchanges. Artwork, collectibles, intellectual property, and equipment no longer apply to 1031 exchanges.

Interest Rate Deduction Decrease

Congress also took it upon themselves to decrease the amount a person can claim in mortgage interest on their federal taxes.

The amount of mortgage interest that can be claimed on your federal taxes is $750,000, which is down from $1 million.

The New Tax Bill Affects Everyone

The result of the new tax bill is that everyone is affected. Some workers are seeing a smaller refund, while homeowners and real estate investors are navigating all of the changes.

If you have accounting questions, we’re here to help. Check out our full line of accounting services to help you navigate these new tax changes.