Republican tax bill to benefit Utah house market. (Photo: MGN)
(KUTV) The Republican Tax Cuts & Jobs Act goes into effect Jan. 1, 2018, and many Utahns are wondering how it will affect their plans to buy and sell homes next year.
The standard deduction for taxpayers is changing. It will go from $6,350 to $12,000 for individuals. Whereas couples will see it go from $12,700 to $24,000. In theory, this means fewer taxpayers will be able to itemize on their taxes, including taking deductions for mortgage interest.
According to Clark Jensen, CEO of Utah Mortgage Loan Corporation, the tax bill should be a good thing for Utah’s housing market.
"Any time you remove artificial government intervention in the market, the market regulates itself and is more efficient," Jensen says.
According to Jensen, these changes mean most Utahns will pay less in taxes and have more money to put into purchases, including homes. But with more money to spend, this can also result in home prices going up.
With additional economic growth, it is likely that the government will raise interest rates in an effort to offset inflation, according to Jensen. "With those conditions, those considering buying would do best not to delay a purchase," Jensen states.
Currently taxpayers can deduct an unlimited amount for state and local property taxes, in addition to sales taxes (or SALT). They can also deduct the interest paid each year on mortgage debt up to $1 million. Furthermore, they can deduct up to $100,000 in interest on a home-equity loan or line of credit.
Under the new law, the state and local tax deduction (SALT) will be the same for those who itemize, but with one significant change — there is a $10,000 cap. It caps at $750,000 for interest paid on mortgage debt. However, anyone who bought a property before Dec. 15, 2017 is able to deduct interest up to $1 million.
According to Marketwatch, the $1 million/$500,000 limits apply for existing mortgages that are refinanced after this year. This applies provided the loan principal on the refinanced home does not exceed the old loan balance at the time of refinancing.
When selling a home, a married couple filing their taxes jointly can exclude up to $500,000 in capital gains on the sale of a home (or $250,000 for single filers), according to Jensen.
"To qualify, they must have used the home as a primary residence for at least two of the last five years," Jensen says. "This isn’t changing."
Utahns who will be most negatively impacted by the new bill are luxury home buyers, or those buying or selling houses priced above $750,000. These people will see deductions capped at that figure, rather than the $1 million figure.
"In Utah, that’s a smaller part of the market because our median home price is in the $300-400K range," Jensen said. "This could slow the market in the upper price ranges."
Jensen points out that with home prices going up and the possibility of interest rates going up, now is a great time to purchase a home. He further recommends refinancing if your rate is 4.5% or higher.