Highlights of the New Tax Law

  • The seven Income-tax brackets were adjusted downward, and tax rates were correspondingly reduced to 10%, 12%, 22%, 32%, 35%, and 37%, creating a short-term tax savings for all taxpayers.
  • The standard deduction was nearly doubled to $12,000 for individuals and $24,000 for joint returns.
  • But the personal and dependent exemptions, which are $4,150 per person this year, have been eliminated.
  • A deduction of no more than $10,000 is allowed for state and local taxes (SALT), which include state taxes on income, personal property, and real estate. There was no cap under prior law.
  • The mortgage interest deduction (MID) is limited to $750,000 for new loans taken out after December 15, 2017. The MID of $1 million is grandfathered in for existing loans. The MID is retained for second homes and refinances (but not beyond the amount being refinanced). The MID on home equity debt has been eliminated (unless the proceeds are used to substantially improve the property).
  • 20% deduction of qualified business income for pass throughs including independent contractors and sole proprietors up to $157,500 (or double for joint filers). This deduction is even available for non-itemizers.

All of the above changes are temporary and are scheduled to expire at the end of 2025.

Sale of Principal Residence – Exclusion of Gain
TCJA does not change the $250,000 for single filers and $500,000 for joint returns exclusions from capital gains tax for the sale of a principal residence when the homeowner has owned and lived in the home for two of the last five years. 

Capital Gains
TCJA retains the current long-term capital gains rate of 15% generally but 20% on those in the highest tax bracket. Depreciation recapture for real property remains at 25%.

Like Kind Exchanges
Tax deferred IRC section 1031 like kind exchanges for real property will be retained in the TCJA. Personal property 1031 exchanges are no longer allowed.

Other Provisions
Moving expenses will no longer be deductible except for those in the military. Certain certified historic structures will still receive a tax credit. The child tax credit will be increased from $1,000 to $2,000. Casualty loses will be deductible only in a presidentially-declared disaster.

As with any tax law, the specifics of the taxpayer’s situation make a great deal of difference in the outcome. This summary is general in nature and you are advised to speak to your own tax advisor.

Cited from the National Association of Realtors.

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