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While we always want to see changes in the market and governmental policy that make homeownership more attractive, the changes to the Mortgage Interest Deduction (MID) in the recent tax bill probably (hopefully) won't negatively impact the majority of homeowners.

 

What are the changes and how do they impact you?

 

• The MID will be capped at $750,000; current owners (if home was purchased prior to December 15, 2017) are "grandfathered" in to the previous cap of $1,000,000.
   
• The ability to deduct property taxes, along with state and local income tax, is limited to a combined $10,000.

 

• Owners of second homes or "vacation" homes can no longer deduct any mortgage interest they pay on those secondary homes.
• Any interest paid on Home Equity Loans is no longer deductible.

While all of this appears to put the homeowner at a disadvantage, it is good to note that in the US, 94% of homeowners have mortgages below $750,000. If you live in a high property tax area (the west coast or New York and other parts of the northeast), the loss of property tax deductions may have a significant impact. However, most of the country will see small impacts from the loss.
 
The Good News
 

• The MID cap is temporary. In 2026, the cap reverts back to $1,000,000.
   
• The Home Equity interest provision also reverts to current law in 2026, when you will once again be able to deduct interest paid on home equity debt of up to $100,000.
   
• The Capital Gains exclusion remains the same: sellers who have lived in a home for two of the previous five years will be able to continue to exclude $500,000 (filing jointly) or $250,000 (filing singly). Previous proposed plans had called for restrictions on this time frame.

Despite the bad news for homeowners and home buyers, please keep these two points in mind:

• Real Estate is the key to building wealth
   
• The housing industry makes up roughly 20% of the GDP.
   
  These changes hurt; but they don't change the fact that homeownership is one of the primary platforms of the American dream. Another thing that doesn't change is the value homeownership adds to the economy, from new construction (materials, job creation) to neighborhood revitalization (communities where homeownership is more common are more stable in regards to property values, as well as crime and health statistics). As for investing in the housing market as a way to build wealth? Acquiring real estate is such a proven money maker, investment companies and hedge funds are now big players in housing markets.
   
  There really has never been a better time.
   
  So, if you've been hesitating to purchase a home because of nightmare stories about tax reform...wake up to the American dream. Embrace homeownership. The time is now. The dream is now.

 

 

 

 

About the Author

Tony Smith is a second generation REALTOR® and owner of Wanda Smith & Associates with over twenty years handling Real Estate Owned (REO) properties and is proud to represent HUD through KM Minemier & Associates Real Estate Services.  Licensed for 35 years, Tony has been active in leadership in the industry for decades; he is past president of the North Carolina Association of REALTORS® (2015) as well as past president of the Charlotte Regional REALTOR® Association. He is currently a Federal Political Coordinator for the National Association of REALTORS®. Tony is a passionate advocate for both REALTORS® and consumers in today's fast moving real estate market.