What are the three major tax reform concerns for homeowners in Colorado?
1. Mortgage Interest Deduction
There was concern that the mortgage interest deduction (MID) would be eliminated. That didn’t happen.
However, the bill has made the following changes:
Reduces limit on deductible mortgage debt to $750,000 for new loans taken out after 12/14/17 (from the existing $1,000,000). Current loans up to $1 million are grandfathered.
Homeowners may refinance mortgage debts existing on 12/14/17 up to $1 million and still deduct the interest, so long as the new loan does not exceed the amount refinanced.
Repeals deduction for interest paid on home equity debt through 12/31/25.
Interest is still deductible on home equity loans if proceeds are used to substantially improve the residence.
Interest remains deductible on second homes, but subject to the limits.
2. State and Local Taxes (SALT)
There was concern that the state and local tax deduction (which includes property taxes) would be eliminated. That didn’t happen.
The final bill allows an itemized deduction of up to $10,000 for the total of state and local property taxes and income or sales taxes.
Colorado has some of the lowest State and property taxes in the country. Most homeowners will be using the standard deduction so this change will have a slight effect on a handful of owners.
3. Exclusion of gain on sale of a principal residence
There was concern that owners would now need to live in their house for at least 5 out of the last 8 years to claim this exemption. Under the former tax framework, a typical owner, who has lived in their house for at least 2 years out of the last 5 years, would pay nothing in capital gain taxes if they sell the house.
No change. The new code will remain the same as the old.
This was a GIFT that the National Association of Realtors pushed to make no changes. This would have really impacted many Americans that were first time home sellers in Colorado. The Colorado real estate market has made some great gains in value that would have cost people in capital gains taxes. It would not be a surprise if Congress looked at making new policy in the future. To protect your gains talk to me about selling now when you don't have to worry about paying taxes on the gain. This is very true if you own a rental and have only had it a few years. You can still save on the taxes if that has been less than 5 years.
Talk to our team about any questions that you might have about buying, selling, refinancing, investing and lastly taxes. We are here to help you make the best financial decisions possible when it comes to owning and renting in Colorado.
Author:Jay Carden Phone: 719-322-4939 Dated: December 22nd 2017 Views: 429 About Jay: ...
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