The tax reform bill moving through Congress could have a big impact on homeowners in Florida, especially those planning to sell. The National Association of Realtors has analyzed the potential effects of the tax changes and concluded that housing prices will drop nationwide by rates of 10 percent to 21 percent.
Although the final terms of the bill have not been completed, limitations to mortgage interest deductions appear to be coming. Currently, people can deduct mortgage interest on home purchases as high as $1 million. Interest on equity debt has also been deductible for an additional $100,000. The coming tax reform will likely remove deductions for equity debt not related to home improvement and possibly cap mortgage interest deductions to loans no higher than $500,000. Deductions would only be allowed for people's primary residences, whereas they can currently deduct interest on a second home as long as the mortgage balances are within $1 million.
The deductions for local and state property taxes will either be capped at $10,000 or eliminated entirely. Supporters of the tax bill believe that the doubling of the standard deduction will make up for the loss of interest and tax deductions because the vast majority of people use the standard deduction instead of itemizing. Even so, the NAR warned that existing tax policy has long supported the goals of homeowners and changes could upset the entire market.
A person about to buy or sell residential real estate might want to discuss the details with an attorney. Legal insights could help a person understand the tax consequences of a real estate transaction. Additionally, an attorney could alert a person about hidden liabilities within a purchase agreement or missing property disclosures. An attorney might improve a person's position by striving to negotiate more favorable contract terms.