How the New Tax Law Affects Long Beach Homeowners
Fallout from the recently-signed Tax Cuts and Jobs Act continues to set-in for Southern California homeowners and potential buyers, who face lower tax breaks for home ownership in the coming decade.
All individual provisions are generally effective after Dec. 31 for the 2018 tax filing year and expire Dec. 31, 2025 unless they fall under certain exceptions.
It's not quite time to scream into your pillow though.
Interest rates are still exceptionally low and the limits for federally-insured home loans will increase again in 2018. Qualified-buyers in Los Angeles and Orange counties can get a $679,650 single-family loan from the Federal Housing Administration with a down payment of 3.5 % or more. The median sale prices for Long Beach single-family homes and condos in November were respectively $622,000 and $350,000.
Now for the bad news.
The new tax law reduces the limit on deductible mortgage debt to $750,000 from $1 million for new loans issued after Dec. 14. There's also the infamous $10,000 cap on itemizing state and local taxes, which have historically been vital for costly California homeownership.
For a Long Beach home with an assessed value of $650,000, the estimated property taxes are $5,155 per year, according to smartasset.com. This falls comfortably in the new cap set by Congress.
Here's a snapshot of other tax changes that will impact homeowners.
- The standard deduction was increased to $12,000 for single individuals and $24,000 for joint returns.
- By doubling the standard deduction, Congress greatly reduced the value of the mortgage interest and property tax deductions as an incentive to purchase a home. Congressional estimates indicate that only 5 to 8 % of filers will now be able to itemize these deduction. Under this law, more than 90% of taxpayers will see no difference tax-wise in renting and owning.
- Homeowners may refinance mortgage debts existing on Dec. 14 up to $1 million and still deduct the interest if the new loan isn't larger than the amount of the mortgage being refinanced.
- The final bill repeals the deduction for interest paid on home equity debt through Dec. 21, 2025. Interest is still deductible on home equity loans (or second mortgages) if the proceeds are used to substantially improve the residence.
- Interest is deductible on second homes, but subject to the new caps.
- The law provides a deduction for loss of a home only if it's attributable to a presidentially-declared disaster.
- The law repeals moving expense deduction and exclusion, except for military service members.
The National Association of Realtors has a comprehensive briefing on what this law means for homeowners and real estate professionals. Click here to read more.
Obviously, this law will continue to have a big impact on local homeowners in the coming years and we'll keep you updated as it's implemented.