The Tax Cuts and Jobs Act has been one of the largest points of political contention since the election, mainly because many haven’t looked at how it will affect individuals and business markets across the country. This is particularly true for the housing market.
The consensus among taxpayers is that there is going to be a massive change that occurs across the board because the tax benefit will be slightly reduced. Voices across social media have cried out with assertions such as:
“Lost mortgage interest.”
“No mortgage deduction whatsoever!”
“How about the damage to local constituents with lowering mortgage interest deductions to an unforgivable level? Do you care?”
The outburst over the tax law as well as the heated debate that occurred over the final terms caused massive panic, confusion and a lack of paying attention to the facts.
So what do changes to the new tax law mean for real estate and the average Minnesotan homeowner? In a nutshell, nothing.
For those that purchase a home between now and 2026, you can deduct the interest for up to $750,000 in mortgage debt as opposed to the former $1 million. Those currently with a mortgage, however, will not be affected by this change as long as the contract went into effect before Dec. 16, 2017, and the home purchase closes before April 1.
But since most of the homes in this country are worth far less than $750,000, this change will not affect the majority of home buyers. For those who currently own a home, you won’t be affected at all.
Ultimately the new tax law is not going to have an effect on Minnesota homeowners who live on average or even above-average incomes. In fact, you will still receive the same benefits. If you are planning on selling a home that you have used as a primary residence for at least two of the last five years, you can exclude up to $250,000 of capital gains from your tax bill and up to $500,000 if filing jointly with a spouse or partner.
It’s also important to note that if you own a second home this law extends to the mortgage interest on it as well. As long as the total mortgage debt of the two properties does not exceed the $750,000 threshold, you will still be able to deduct your mortgage interest.
For a vast majority of homeowners or buyers, the tax law is actually a benefit. But when it comes to long-term impact on housing values — don’t expect a change.
For those who have assumed the new tax law is going to be a catastrophic end to their ability to write off their mortgage interest or crush their dreams of buying a new home, your assumptions are off the mark. In addition to the fact that the changes are minimal, the tax deduction shouldn’t be a major factor when you make the decision to purchase a home. No matter if you are purchasing your first home, your next home, or even a second home for your family, there are three things you should focus on when house shopping:
• Building equity.
• Building a positive environment for your family.
• Having a place to live.
Shopping for and purchasing a home involves a lot more than whether you are receiving a massive tax break on the mortgage or not.
The Tax Cuts and Jobs Act will not have a direct effect on real estate, and no one is going to remember it in six months when the political discourse has calmed down and tax season has ended.
John Collopy is the owner and broker of RE/MAX Results and the author of “The Reward of Knowing.”