Selling your Greater Washington DC area home?
There's a lot of uncertainty about The Tax Cuts and Jobs Act and its effect on real estate. Let’s first take a look at the four key tax changes impacting the housing market at this moment:
1. Deductions for property taxes. Prior to the new tax bill, if you itemized your deductions, you could deduct all of your property tax. Going forward, this amount will be capped at $10,000.
2. Deductions for mortgage interest. The final bill reduces the limit on deductible mortgage debt to $750,000 for new loans taken out after 12/14/2017. Other loans of up to $1 million are grandfathered in.
3. Home sales exclusion for capital gains. If you sell your home and turn a profit, then up to $500,000 of that profit is exempt from capital gains tax. Although earlier versions of the bill required you to live in the home for five out of the last eight years, the final bill made no changes to the capital gains exclusion. In order to qualify for this exclusion, you must have lived in your home for two of the past five years to claim this exemption—just like before.
4. Deductions for moving expenses. The final bill repealed the moving expense deduction, except for those who are members of the Armed Forces.
The first two changes increase taxes on current homeowners and make homeownership less attractive. This is a part of why the National Association of Realtors claims that home prices could drop by more than 10% due to the new tax plan.
On the other hand, the last change makes it more expensive to sell your home. As a consequence, they could keep some homes off the market.
We'll have to see how the different changes play out in reality, and how they interact with other real estate conditions. However, there does seem to be a consensus among experts that current reforms might drive home prices down somewhat in the midterm.
On the bright side, home sellers do still get to take advantage of the home sales exclusion for capital gains. That is a major victory for real estate.
That's why if you've been thinking of selling your home, now might be a good moment to start the process. If you have any questions, whether you are buying or selling, you can always call me at 703-328-3434 or shoot me an email at Janet@TheGreshGroup.com. I can give you more specific recommendations based on your unique situation. I look forward to hearing from you soon.