Changes to tax laws always seem to benefit owners of real estate in some way, as homes, income properties, commercial properties and even land are all taxed differently and on many different schedules. Land and homes are subject to property tax at the state level. Meanwhile, mortgage interest can be deducted at the federal level, and so on.
The new tax law that recently went into effect has some interesting ramifications for homeowners in particular. If you own more than one home, own properties as income vehicles or even if you are living on the only property you are interested in buying, the changes to the tax laws have something to offer. Let us explore these changes in greater depth.
If you own real estate that functions as “income property,” you will receive a considerable benefit from the new regime. Up to 20 percent of the business income you receive from your properties can be treated as “pass-through” income, and will be taxed only once on your personal return. This is very much like taxes that apply to certain kinds of business entities like LLCs and some partnerships, where business income is not taxed at all.
The details are rather complex, and if you are interested in taking advantage of this situation, you are well-advised to seek the counsel of a qualified accountant. Ultimately, however, this is a tremendous relief to owners of income-generating properties across the country.
The interest on home equity loans can no longer be deducted from your federal taxable income unless the funds are used for home improvement. While this can be seen as a potential problem for some homeowners who borrowed heavily against the increasing value of their home over the past few years, the fact is this new provision creates a positive incentive.
Encouraging homeowners to improve their homes is ultimately a good thing, because it increases the value of the property, and puts borrowed funds to good use. It also discourages homeowners from viewing their house as collateral to combat credit card debt. Unsecured debt should remain just that: unsecured. Putting people’s homes on the line so they can purchase a vacation package probably is not considered good public policy.
The new tax laws are quite complex. If you are in the real estate market or already own property, it would be in your best interests to learn all you can so you can take advantage of the changes at your earliest opportunity.