Sometimes real estate is more art than science.
Because every homebuyer’s situation is nuanced from home to realtor to geographic location, there’s no cut-and-dried way to go about it, and that’s whether you’re investing, moving or selling.
But there are a few things you should know about — whether you’re a long-time homeowner or just beginning your search. Because buying a home is one more thing the Tax Cuts and Jobs Act (TCJA) affected last year — so it’s time for a little homebuying update and explanation of the changes that have occurred.
There are three, in particular, that you should keep in mind.
Three New Tax Implications for Buying or Selling a House in the West Michigan Area
“The ache for home lives in all of us, the safe place where we can go as we are and not be questioned.” -Maya Angelou
If you have any additional questions about the following information, please reach out with a phone call. I’d love to discuss these tips and more in greater detail: (231) 747-7648
Lower Deduction Cap
Currently, West Michigan homebuyers are only allowed to deduct mortgage interest they spend on up to $750K in debt for a new home. If the buyer is filing separately while married, the total is $375K.
Prior to the TCJA, total mortgages (of up to $1M) were fully deductible if they were owned as primary residences.
Also, if you bought your home before the TCJA went into effect, and plan to refinance your home, the “up to $1M” of total deductible mortgages rule still applies.
Property Tax Deduction
We’ve talked a little in the past about state and local tax (SALT).
In short, there is a $10K SALT deduction limit that applies to items like real estate and local income taxes. Before the TCJA there was no limit. Now, homebuyers need to pay a little more attention when it comes to SALT regulations.
(I’m here to help with this too!)
Tax Breaks for Sellers
This is kind of a “bonus” tip, but I figure if you or someone you know is buying a home, there is a chance that selling a house also applies to the situation.
In that case, the tax implications of selling a house can be positive.
Something the TCJA did not affect was the fact you don’t have to pay capital gains taxes on the profit you make from selling a home. Now, you still need to meet the requirements for living in the house long enough to earn money from the sale. But this perk could make the stress of buying and selling a house worthwhile for your bank account.
I hope these brief tips help you or someone you know.
Even though the TCJA shifted some laws around, note that the law is liable to change in 2025. It’s not set in stone, and things could change in just a few years’ time.
All the more reason to form a relationship with a trusted West Michigan expert for all the changes (most likely) to come.
Forrest Tax & Accounting Services