The Impact of Tax Reform: What does this mean for Homeowners and Real Estate Professionals?

SALT (State and Local Taxes): Homeowners who itemize their tax returns can claim up to $10,000 for the total of state and local property taxes and income or sales taxes. 2017 Prepayment, Homeowners who prepaid their 2018 taxes in 2017 are precluded from deducting those taxes.

Mortgage Interest Deduction: New limit on MID is $750,000 – Grandfathered in at $1million as of 12/14/17 (not subject to cap). Homeowners may refinance mortgage debt existing on 12/14/17, so long as the new loan doesn’t exceed the amount of the mortgage being refinanced.

Home Equity Loans: Interest paid on home equity loans is only deductible if proceeds are used to substantially improve the home.

Second Homes: Interest remains deductible on second homes, subject to the 1 million/$750,000 limit. Some say this is still present because many of those that wrote and approved the Tax Reform have second homes.

Moving Expenses: This reform repeals moving expense deduction and exclusion, except for members of the Armed forces.

Housing Market Impact

California’s Median Home Prices were projected to increase 4.2% in 2018, but the new forecast a 3.2% increase. Home Sales are projected to grow but slower than previously predicted. The Housing Supply projection is that homeowners will delay listing their homes and therefor CA will see a decline in active listings by .3%.

Business Income

Deduction for Qualified Business Income upfront 20% deduction for Independent Contractors, By pass business, LLC, Partnerships and S-corps, with exceptions.

Personal Service Income Exception, REALTORS® fall into this and can take the full 20% deductions, so long as all requirements are met.

Expensing (Section 179)

Passenger Auto depreciation was increased to $10,000 first year placed in service. $16,000 second year, $9,600 third year and $5,760 fourth and later. Qualified properties eligible for immediate expensing was increased from $500,000 to 1 million. Phase out limitations are increased from 2-million to 2.5 million. Eligibility of qualified real property was expanded to include improvements such as roofs, heating, ventilation, a/c; fire, alarm and security for non-residential real property.

Entertainment Expenses

No Deductions for (1) any activity generally considered to be entertainment, amusement, or recreation; (2) member dues for club organized for business, pleasure, rec or other social services; and (3) facility or portion of such used in connection with above items. The 50% Deduction can be used for food and beverage for operating their trade or business (e.g. meals consumed by employees on work travel).

IMPORTANT

There will be more to come on this as the year goes on since the Tax Reform is over a 1,000 page document. Don’t try to be a tax specialist or give tax advice. You and your clients should seek tax advice from appropriate professional. Don’t panic, just be educated!

More information can be found by going to https://www.nar.realtor/tax-reform  &   http://on.car.org/taxcutsandjobsact2017

Ryan Ole Hass

Beverly Hills/Greater Los Angeles Association of REALTORS® Treasurer