What Does the New Tax Bill Mean for Homeowners & Home Buyers?

With a new tax bill going into effect in 2018, many of us are wondering how this will affect us. At Mortgage Options, Inc. we not only help you find the best mortgage for you, we like to be able to advise our clients on the tax implications of their new mortgage. This is what we know so far in regards to the new tax bill, and how it will affect your mortgage interest and property tax deductions. We also suggest discussing you tax situation with a tax professional or CPA.

What We Know

Two aspects of the tax bill that will affect homeowners and home buyers directly are related to itemized deductions for mortgage interest and property taxes.

Mortgage Interest Deductions

• New home buyers will only be allowed to deduct interest on the first $750,000 of mortgage debt on a newly-purchased home. This is down from $1 million in 2017 and preceding years.
• This lower cap does not affect current homeowners. Taxpayers with existing mortgages can continue to deduct interest on a total of $1 million of mortgage debt for a first and second home.
• Deductions for interest on home-equity loans are suspended through 2025.

The good news here is that this does not affect you if you have already purchased a home. If you are planning to purchase a home in 2018 or beyond, it’s good to keep these new rules in mind.

That said, this is unlikely to affect the majority of our customers in South Carolina, North Carolina, Georgia and Tennessee. Here are the median listing prices for homes in each state, as of January 2018:

South Carolina: $239,900

North Carolina: $250,900

Georgia: $239,790

Tennessee: $225,000

As you can see, we do not live in an area of the country that sees house prices over $750,000 that often. The change in the mortgage interest deduction is more likely to affect people in metro areas with higher house prices like New York City or San Francisco.

Property Tax Deductions

The new tax bill has put a cap of $10,000 for deductions on property taxes for both individuals and married couples. Previously, there was no cap on deductions for property taxes. This is most likely to affect people who live in states with higher property taxes. For those of us living in Tennessee, North Carolina, Georgia and South Carolina, our property taxes are low compared to other areas of the country. Here’s a breakdown of the averages:

South Carolina median home value: $147,000
Average effective property tax rate: 0.57%
Average property tax per year: $838

North Carolina median home value: $164,900
Average effective property tax rate: 0.88%
Average property tax per year: $1,451

Georgia median home value: $160,100
Average effective property tax rate: 0.94%
Average property tax per year: $1,505

Tennessee median home value: $145,500
Average effective property tax rate: 0.75%
Average property tax per year: $1,091

As you can see, our lower property taxes mean that most of us won’t be affected by this $10,000 cap, but residents in higher-tax states like New Jersey, New York and California are likely going to feel the pinch.

Tax Break for Home Sellers

The tax break for homeowners who sell their house for a gain stays. Taxpayers will still be able to exclude up to $500,000 (or $250,000 for single filers) from capital gains when they sell their primary home, as long as they've lived there for two of the past five years.

Still Have Questions?

At Mortgage Options, Inc. we’re more than happy to discuss your questions regarding mortgages. Contact us for a free consultation at 803-732-5787. Our loan officers are regularly updated on changes in the housing and mortgage market, making us a valuable tool to offer advice and guidance. We have offices in South Carolina, North Carolina, Tennessee and Georgia to help you get the best mortgage for your Southern home.

Sources:

• https://www.wsj.com/livecoverage/tax-bill-2017/card/1513387809
• http://money.cnn.com/2017/12/17/real_estate/tax-bill-mortgage-property-tax-deductions/index.html
• https://www.zillow.com/sc/home-values/
• https://www.zillow.com/ga/home-values/
• https://www.zillow.com/tn/home-values/
• https://www.zillow.com/nc/home-values/
• https://smartasset.com/taxes/georgia-property-tax-calculator
• https://smartasset.com/taxes/south-carolina-property-tax-calculator
• https://www.investopedia.com/walkthrough/guide-buying-house-us/property-tax-assessment-state/southern-region-property-taxes/tennessee-property-tax-guide/
• https://www.bizjournals.com/triangle/blog/real-estate/2015/03/north-carolina-property-tax-comparisons-us.html