How the 2018 Tax Reform Bill will Affect Real Estate

2018 tax bill real estate mortgage

Let’s start off with the good news.

2018 Taxes when you Sell your Home

No change! Homeowners who have lived in their property as their primary residence for two out of the last five years still qualify for the full tax exemption, up to 250,000 profit (gain) on the sale for an individual, or 500,000 profit (gain) on the sale if filing jointly. See IRS website for full details. This tax deduction was threatened but did not change. Of all the proposed real estate tax changes, this one was the most concerning to me and I was thrilled when it was removed from the bill and no changes were made to the current tax deductions when a homeowner sells their property.

Now for the sort of bad news.

2018 Mortgage Interest Deduction

Mortgage interest on purchase loans are still deductible up to a $750,000 loan. Not many home loans in our area are above $750,000. This is not the purchase price, this is the loan amount. This will affect luxury home buyers in our area, but not the average home buyer. Many luxury home buyers also do not apply for loans that big because they already have planned on having significant downpayment amounts.

What will affect the average homeowner in our area is the loss of the interest deduction available for any home equity lines. This tax deduction looks like it will disappear altogether and there is no “grandfather” clause, meaning your current home equity line will lose that tax deduction.

Now for the bad news.

New 2018 Tax Deduction Cap for Property Taxes

The bad news here is not simply that your property tax deduction limit will be capped at 10,000. This would affect plenty of homeowners in our area, but not the majority. The really bad news here is that your state property tax and your total income state tax deductions are combined in the cap and together cannot exceed 10,000. It seems likely many homeowners will lose out on state tax income deductions or property tax deductions because of this change.

How will the 2018 tax bill affect the Portland real estate market?

They won’t. In my opinion, the changes are not good for the real estate market but the changes are so marginal, I do not expect it to alter the local Portland real estate market projections at all. Other forces like population gain, available home supply, job growth, and mortgage interest rates will have a much greater impact on the Portland real estate market in 2018. The tax changes will have little to no impact in comparison with these data points. Read our housing market forecast here. This article is not intended as professional tax advice, it is a real estate opinion article, if you need tax advice, please consult with your local tax professional.

December 30, 2017

Stephen FitzMaurice

Stephen FitzMaurice, Realtor is a top 5% real estate agent in the U.S. A Principal Broker in Oregon, Managing Broker in Washington, he has been licensed since 2003 for residential real estate sales. Call his team in Oregon at 503-714-1111 or in Washington at 360-345-3833.

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