It’s only been about a month since the new Tax Cuts and Jobs Act (TCJA) was signed into law, and we’re already seeing many immediate effects, from companies offering bonuses to homeowners lining up to pay property taxes early out of confusion. Corporate tax cuts and a new tax rate structure have changed the landscape for new businesses and individuals. These changes are especially important for realtors, who tread a balance between employee and business owner, as well as important influencers over valued clients. Your clients will want to know what this means as they step in to a search for a new home or are looking to sell.
The tax reform offered several wins for the real estate industry by keeping the capital gains provisions. Changes were suggested to raise the number of years you must live in a primary residence before you can exclude capital gains from two out of five to five out of eight years. This is a massive step in encouraging real estate investment and for your clients to have even more options when buying and selling.
Here are three other important things to remind your clients of about the new tax codes.
- Tax Bracket Simplifications
The biggest change the bill introduces is the change in tax rates. It still maintains seven income tax brackets, but all rates have been lowered. The corporate tax rate was also lowered from 35% from 21%. It also maintains the current maximum rates on net capital gains. All of these will give your clients more money and more options when buying or refinancing a home. We believe it’s critical for your clients to meet soon with their accountant to review their tax strategy in view of these changes.
- Deductions Deductions Deductions!
The standard deduction for individual and married couples doubled to $12,000 and $24,000 respectively. While the limit on mortgage debt you can deduct was reduced, buyers can still refinance debts up to $1 million and deduct the interest as long as they were in place before December 14, 2017. You can also deduct interest on second homes. State and local taxes for property, sales, and income tax together is a combined $10,000 and applies to single and join filers.
- Education and 529 Plans
Account owners can now take up to $10,000 annually out of their 529 plans. This covers public, private, and religious schools for all schools K-12. 529 money can also be rolled over to Achieving a Better Life Experience (ABLE) accounts as long as they are owned by the designated beneficiary or family member. Prior to this reform, 529 plans could only be used to pay for post-secondary education. It’s important for your clients to understand the implications of using this money earlier though. The primary benefit of 529 plans is to provide tax-free growth for education purposes. While taking this money earlier might seem great, it also means that you’re taking away from your own principal that would give you more growth.