The Senate and House of Representatives passed the Tax Cuts and Jobs Act bill ahead of the Christmas deadline. But what changes in the new tax plan will affect Colorado homeowners?
The excerpt below from CNBC highlights the major changes that will affect homeowners.
These changes under the GOP tax plan affect homeowners:
- After this year, the interest paid on loans for vacation homes is no longer deductible.
- Property, state and local income taxes face a combined $10,000 deduction limit.
- While the deduction limit pertaining to mortgage interest drops to $750,000 of debt on your primary residence, it remains $1 million for homes purchased before Dec. 15 of this year.
Capital Gains and Residency Requirement
An early version of the tax bill included a change to capital gains tax that would have affected more homeowners. The change would have raised the residency requirement for tax-free gains. The proposed change would have required home sellers to live in the home as their primary residence for 5 of the last 8 years to receive the capital gains tax break. If not, home sellers could pay a large portion of their home sale proceeds in capital gains taxes.
In such a fast paced real estate market, like Denver’s housing market, this could spell trouble for homeowners. First time home buyers who purchased starter homes, with the plan of selling after a few years, would have had to stay in the home for at least 5 years to avoid capital gains taxes.
However, this change was removed from the final version of the bill. The tax break will stay the same, with a residency requirement of 2 of the last 5 years. Good news for the Denver homeowners featured on the 9NEWS segment, Verify: How the tax bill affects home sales. The revision to the tax plan is noted in the Editor’s note for the 9NEWS article:
Editor’s note: Either Congress had a change or heart of the real estate agents have good lobbyists. Both the House and Senate versions of the tax bill would have encouraged people to live in their houses longer, but compromise version threw out the change all together. If the tax bill becomes law, this tax break for homeowners will stay the same as it was before.
What does the Tax Plan mean for me?
While the tax plan changes do not affect all homeowners, they may affect Colorado homeowners with homes above the new thresholds. It is important to understand all aspects, including taxes, when you are planning on buying or selling a home.
To understand how the new tax plan affects you and your home, contact a local REALTOR® or real estate agent. Your real estate agent if your go-to resource for all things related to real estate. They can answer your questions about the new tax plan and how it may impact buying or selling a home. Find a Colorado real estate professional on REcolorado.com.