4 Ways The New Tax Cut Will Affect YOU
1. Tax Rates
The number of tax rates/brackets remains the same. However, some rates have been lowered and the thresholds modified. The highest tax rate has been lowered. From 39.6% to 37%. Most taxpayers will enjoy some tax reduction.
2. State & Local taxes
Previously, State and Local taxes including Property Taxes were more or less totally deductible. In 2018, the maximum amount of “State Taxes” deductible is limited to $10,000. While Property Taxes are still deductible, in CA, lots of Taxpayers’ CA withholding from their W2 income exceeds $10,000 thus rendering the property taxes non deductible. I am sure most people have heard about the lawsuit that some States are bringing against the WH to get some relief.
3. Mortgage Interest
Mortgage interest on up to $1 million is deductible for existing mortgages. 2018 and out, only interest on $750,000 is deductible on new mortgage loans taken out.
Interest on Lines of Credit which are secured by the Home is no longer deductible starting in 2017.
The general tone of the new Tax Act is pro business. Corporations have their maximum 35% tax rate reduced to 21%
Since this tax rate does not apply to other entities ( LLCs, SCorps, Partnerships etc),A new Section 199A was created to allow qualified businesses to deduct 20% of taxable income. Many rules must be satisfied before this deduction is available.
The WH has also enacted rules to encourage Corporations to bring back to the USA billions of corporate income currently parked overseas.
These stimulations is already starting to have effects in businesses increasing compensation, starting current projects on hold and investing in new projects.
These positive effects on businesses will be beneficial for Real Estate transactions directly as take home income increases.
Decisions on Primary Residences transactions should be focused on factors such as suitability, safety, stability and growth and last but no least schools. Tax deduction on mortgage interest and property taxes will only yield cents to the dollar and should be treated as a bonus.