New Year, New Tax Law
The effect on you and your home
Tax law. If we had to choose two words to put together to cause the most confusion possible, “tax” and “law” would be them. How will it affect me? Is this good? Bad? How about my property value? What’s going to happen to the real estate market? The economy in general? While only time will truly tell how much the new tax law will affect every person, property, and place, a little clarification can go a long way in easing some initial fears and concerns.
When it comes to South Florida residents, “The benefits of [the new tax law] far outweigh the setbacks,” Rick Superstein, CPA at accounting firm Superstein & Superstein, said. One of the most substantial changes in the tax law caps state and local tax deductions at $10,000 (including property taxes). Superstein anticipates that property owners in the northeast are going to take a big hit, which could accelerate a physical move from states with high income taxes — like New York, New Jersey, and Pennsylvania — to places like Florida that do not have state tax. This potentially can result in a positive boost for Florida’s real estate market and economy. In regards to changes in mortgage interest deductions (the third-most itemized tax deduction, according to the Tax Foundation), Superstein doesn’t anticipate there being a huge difference for South Florida homeowners. Mortgage interest deductions allow homeowners to subtract their interest on their home loan from their taxable income. Previously, the deduction applied to mortgages of up to $1M. Now, that threshold has been reduced to $750,000. Overall the new tax code is tougher on line item deductions than before.
As a counterpoint, the new tax law does have a lot of valuable credits and deductions. Certified historical structures, for example, now receive a 20% dollar-for-dollar credit. LLCs, S corporations, and other “pass through” companies will be able to deduct 20% of their qualified business income (with limitations), and it still allows capital gains exemptions for sellers. And companies who paid employees during Hurricane Irma can be looking at new credits and deductions as well. Of course the tax code is still as complex and nuanced as ever. Each change we mentioned and all the other items in the new tax law are subject to limitations based on your tax bracket, income level, whether you’re buying a home, selling a business, experiencing a major life event, etc. You have to look at the whole picture and include all of the factors to really understand how the new tax law will affect you. Regardless, it’s always a wise idea to understand the changes. “You don’t have to take short cuts if you know the law,” Superstein said. Overall there are a lot of benefits to be had. Take the time to plan with your tax professional and strategize how to make your situation as tax efficient as possible.