There is a lot of buzz in our industry regarding the new tax bill passed shortly before Christmas. The concept of this tax bill is to rev up the economy aka move money honey. So how does this bill propose to do that? The tried and true trickle down economics – cut taxes so that businesses and consumers will spend more, therefore the economy will grow. We’ve all heard politicians promise to lower taxes, haven’t we? Keep in mind where they cut they must then gain elsewhere. Below we have detailed how this new tax bill will affect you.
Your Wallet: We will all initially take home more money. The bill has reduced the amount of taxable income (see chart below for where you would fall). For some this will be pretty significant. On the flip side, you will also potentially owe more taxes or have less of a return come April 15th since there are eliminations of previous tax deductions, and capping of others. So in other words you will most likely have more money up front (which the government hopes you spend), but potentially could owe more taxes or receive less of a return on the back end. Essentially this is a restructuring of your own money, in hopes of jump starting economic growth.
Real Estate: There will be a decrease in mortgage insurance deductions allowed from $1.1 million to $750,000. It’s true there aren’t going to be a ton of people in this price point severely affected, in other words if you can afford a house in that price point, your probably not hurting for the deductions, but still a significant change that could see effects in real estate. There will be an elimination of tax deductions for interest on HELOC’s- Home equity line’s of credit previously up to $100,000. State and local deductions or sales and state and local income taxes will be capped at $10,000. This is relevant because it could affect where a buyer choses to live state by state. The cap on state and local taxes, also affects the incentive to buy real estate as opposed to rent.
Big Business: I have to be honest, the rich are going to get richer. The new tax bill is going to cut corporate taxes from 35% to 21%. Corporations will also be able to expense capital equipment, allowing for bigger write off’s for purchasing fleets, equipment, etc. By cutting the amount of taxable income on corporations, the hope is they grow their businesses, hire more staff, buy more buildings, and add to economic growth through commerce. Interestingly the entire tax plan is only valid through 2025 with the exception of the corporate tax cuts.
Babies and Brains: Big incentive’s for babies and the educations for them. The tax credit per child is being doubled from $1,000 to $2,000. The 529 Plan traditionally used for college can now be used for K-12, allowing for parents to use this plan for private schools. This effectively subsidizes religious schools and home-schoolers.
**CAUTION** Here comes an opinion- In terms of real estate since that’s what we are all about, I wouldn’t say there is a huge impact on sellers or buyers. The truth is tax deductions as it pertains to real estate are GREAT, but not the only reason to buy. In fact, most of my first time home buyer’s don’t even really know about that perk. Remember there is life to be lived, homes to be enjoyed, and memories to be made, it’s our job to help you protect your investment. When this tax bill first came out I felt it had a connotation of the sky is falling, and while you may agree or disagree with all or some of it, we are all in this together. If you have more questions please feel free to message us 🙂