New Tax Plan Impacts on Home-Ownership

January 2018 – The new tax plan (Tax Cuts and Jobs Act, PL 115-97) will make a number of changes to the federal tax code. Many of which may be revisited and amended in the near term.  However, as it currently stands it is likely to have significant impacts upon homeowners and home purchasers.  A thumbnail of those changes includes:

• A limited on the mortgage interest deduction at $500,000 (currently set at $1 million) for mortgages on homes purchased after November 2, 2017 (mortgages originated prior to that date would be “grandfathered-in”, this includes refinanced homes purchased prior to that date.)
• The mortgage interest deduction will only be applied to primary residences, eliminating the currently allowed deduction for second or vacation homes.
• Itemization for state and federal taxes will be retained for individual property taxes – however, that itemization will be capped at $10,000.  Unfortunately, this cap does not adequately address the higher property values (and tax rates) in states such as California, New York, Massachusetts, Washington state, and Washington D.C. In these states, due to the increased property valuation, homes exceeding this threshold are owned by middle-class income-earners.

Any argument based upon long-term retention of a home in order to retain the tax benefits from grandfathered mortgages ignore the changed employment market.  Homeowners have few options when it comes to relocation to seek positions. Employment models do not follow the model of thirty years ago where employees could count on growing with a single company, or even with an industry in a local area. Jobs are of shorter term and are increasingly transitory.  Employees are forced to move to where they can find employment to support their family. Thus there will be no long term benefit under these new rules for most existing homeowners.