What the Tax Cuts and Jobs Act Means for CNY Homeowners
President Donald Trump signed the Tax Cuts and Jobs Act on December 22, 2017. This law went into effect on January 1, 2018. When Americans file their taxes this year, it will be for 2017. Therefore, this year’s tax filings will be under the old law and there should not be any differences from last year. Filing tax returns next year will be under the new law, but the law is in effect now so it is important to understand what to expect under the new tax law to make informed decisions.
This article provides insight regarding the potential impact for CNY homeowners under the Tax Cuts and Jobs Act. This information is no substitute for tax or financial advice from your own advisor.
Tax Table Changes
The Tax Cuts and Jobs Act redefines the tax tables. There are still seven brackets, but the thresholds changed and the tax rates were reduced for a majority of the brackets. The article, Tax Reform Is Here: What It Means for Your Taxes presents tables showing the changes between the old and new brackets. Note that there are two tables, one for single filers and one for married joint filers.
Standard Deduction and Tax Credit Changes
Standard deductions under the new tax law nearly double to $12,000 for single filers and $24,000 for married joint filers. The new standard deductions increased enough to overcome the loss of the personal and dependent deductions for small to mid-sized families. Other changes include increased child tax credit, easing the burden of the alternative minimum tax and maintaining the earned income tax credit. Under the old law, roughly 30% of Americans filed using the standard deduction. That percentage will increase under the new law.
State and Local Taxes and Home Mortgage Deductions
State and local tax deductions under the Tax Cuts and Jobs Act are limited to a maximum of $10,000. Under the new law, mortgage interest may only be deducted for indebtedness of $750,000 or less (formerly $1 Million). Existing mortgages are grandfathered as the new law only applies for homes purchased after December 14, 2017. The state and local tax deduction will have more impact in CNY than the mortgage interest deduction. Regardless, most CNY homeowners will not need to be concerned with seeing these deductions limited, but they may not have enough deductions to exceed the standard deduction defined by the new law. This will simplify tax returns for most CNY homeowners while a majority will still realize a tax savings.
CNY Market Impact
The state and local tax deduction cap defined by the Tax Cuts and Jobs Act will impact some segments of the CNY market. This will not have a direct impact on median price range homes, but will be a factor to consider for higher priced homes. There are some school districts in CNY where homes priced at or above $250,000 pay more than $10,000 in state and local taxes. Long term, this may cause a strain in terms of school district deficits if homeowners relocate out of these higher priced school districts.
Nationally, most experts expect the Tax Cuts and Jobs Act to cause home prices to decline in the short term. This is due to the perception that there will be less tax benefit associated with owning a home. Since more homeowners will use the standard deduction, the ability to reduce taxes through itemizing will now be out of reach. Renters will now be able use the same standard deduction and will see the largest immediate benefit. There are many intangible benefits to homeownership that are not dependent upon the tax code. Only time will tell, but the impact of the new tax law should not have a significant impact on the CNY housing market.