Congress is getting closer to passing monumental legislation. While many things could change, the real estate tax seems to be getting clearer. Before going into details, remember two things: 1- Always discuss any changes with your tax professional, and 2- Until Congress actually passes the new bill, there is the possibility of a change to any of these areas.
The two chambers of Congress had come up with two different levels at which the mortgage interest deduction would be capped. The House is limiting this to $500,000 and no second home while the Senate would limit it to interest on $1 million dollars. Congress seems to have reached an agreement for cap it at $750,000.
Real Estate Tax on Property
In the past, property taxes paid on your home were able to be deducted from your taxable income. The new tax law would changes this. Only the first $10,000 in property taxes may be deductable under the compromise package. This varies from the Senate version as that eliminated the deduction completely.
In the past, an individual could deduct moving expenses if they were moving 50 miles away from their current commute. The proposed tax law takes this deduction away. The only exception would be for members of the armed forces.
Increases obtained through the Sale of your Principal Residence
Proposed new real estate tax law also makes a change to the minimum residency period for tax exemption on gains from the sale of a principal residence. Currently, you have to have lived in the home at least 2 of the past 5 years. The new tax law will likely alter this to be 5 of the prior 8 years. If you meet this requirement, you’re able to claim a $250,000 exemption of capital gain per individual or $500,000 per couple.
There is still a possibility that the proposed real estate tax laws may change or not even pass. If you have specific questions about your home situation, feel free to contact the Laura Wucher team to discuss your real estate and potential tax situation.
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