The Tax Reform Bill has caused a lot of confusion in the general public due to its complexity and the somewhat convoluted process in which it will be enacted. If only it were as simple as the Schoolhouse Rock video “I’m just a Bill”.
I’m going to skip the 1970’s animation and bullet out where we are currently at in both versions of the bill as it pertains to personal real estate holdings. Both the House of Representatives and the Senate have passed their respective versions of the Tax Reform bill. Three main components, with respect to real estate, are outlined below:
(1) Mortgage Interest Deduction
- Current tax law:
- You can deduct mortgage interest for purchases up to $1,000,000 (applies to primary residence plus one other home)
- House Bill:
- You can deduct mortgage interest for purchases up to $500,000 (current mortgages are grandfathered in)
- You can no longer deduct mortgage interest on a second home
- Senate Bill:
- No change in mortgage interest deduction (remains at $1,000,000)
(2) Property Tax Deduction
- Current tax law:
- You can deduct state and local property taxes with no cap
- House Bill:
- Property tax deduction capped at $10,000
- Senate Bill:
- Property tax deduction capped at $10,000
(3) Exclusion of Gain from Sale of Your Home
- Current tax law:
- You can exclude up to $250K (single) or $500K (married) as long as you have lived in the house for 2 of the last 5 years
- House Bill:
- Same exclusion amount but would have to have lived in the house 5 of the last 8 years
- Phases out based on income
- Senate Bill:
- Same exclusion amount but would have to have lived in the house 5 of the last 8 years
Next steps:
- Conference committee formed to iron out the differences between the two bills
- Both the Senate and the House of Representatives have to approve identical bills
- President Trump can then sign into law (Goal is before year end)
CYA disclaimer: I’m not a tax professional, I just read a lot. Please consult a CPA or at least someone smart than me before making any tax based decisions!
