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November 22, 2017

Refinance Pitfalls to AvoidSenate Mortgage Tax Relief

Last Monday the Senate outlined their new overhaul for the United States tax code. The proposed bill differs significantly, debated between the House of Representatives and Senate discussions. The biggest changes to come relate to individual earnings, with one of the largest corporate tax cuts ever seen said to be delayed until later next year.

The housing industry has began to adjust to these changes, most notably seen in the industry’s lowering mortgage rates. You can see yourself these record-low rates in the months of September and November here.

Notable changes will happen to home owners all across the country once these changes come into effect. The question for first-time homeowners or those looking to sell is simple. Is it more beneficial to apply for a loan now, or wait until everything blows over?

The good news is that while these changes could impact you as a homeowner, the rates are positively reflecting the changes in anticipation. Mortgages are witnessing record lows in 2017, seeking to assist homeowners in finding their dream home before these tax codes come into effect. Get in touch with us to find out how low mortgage rates have actually become!

The best way to take advantage of these tax overhauls is to act proactively. Whether you’re looking to purchase or refinance, take advantage of these benefits this holiday season. Otherwise, you might be hit by some of the tax changes and not even know it!

Let’s talk about the sort of ways the proposed bill will impact the mortgage industry, and how you as a consumer should be prepared for the changes.

Mortgage Interest Deduction

The current tax code allows mortgage interest deductibles of around $1 million. Between the House and Senate, the new act has been debated between staying the same, or decreasing the standard cap to $500,000. The bill would also eliminate all deductions on interest for second homes.

Second home deduction might not affect many primary home-owning Americans. However, the deductible tax on mortgage interest is perhaps the biggest change to note. Real estate partners might raise a house’s overall cost to compensate for the tax difference. As prices inflate, the appeal to home owning might not be accessible to some. Home sellers could potentially take advantage of these rising rates as their home’s value appreciates!

Property Tax Deductions

The new Senate plan would completely eliminate all state and local tax deductions for homes. To put this into perspective, in 2013 the average tax deduction for homeowners was $6,100. For Americans filing jointly, that deduction is more than double.

Eliminated property tax deductions could include property tax & discount points, as well as some additional home-improvement tax deductions. If you work from home and deduct office taxes, this could even be included in the elimination.

This proposal has been heavily debated between the Senate and House. Significant financial setbacks are projected when so-called “tax hikes” eliminate the increased spending potential of Americans.

The takeaway here is that if you plan on improving or adding renovations to your home, winter might just be the best time to do so!

Property Vending Tax

One of the largest debates on the proposed bill is whether money earned on a primary home should be taxed, and the prerequisites exempting taxable earnings towards real estate sales.

Tax code currently excludes $500,000 in real estate sales($250,000 in some states), but only if they’ve lived in their current home for two of the last five years.

Capital gains exclusions would be maintained under both Senate and House changes. The main difference is the mandatory live-in period. The new change will see homeowners living in their homes for five out of the last eight years to qualify. There are exemptions to this, such as if the seller is leaving due to medical need.

The issue here is it will lock many more homeowners interested in selling, potentially for another three years or more if recently purchased.

Some of these might not altogether affect you as a homeowner. The importance is being educated on how to get the best mortgage for your financial future. Take advantage of some of the lowest mortgage rates in 2017, for almost four straight weeks in a row!

Are you interested in a mortgage, or refinancing while rates are low? Let us know and get in touch with us! And if you’d like more mortgage education and knowledge, be sure to follow us on Facebook or Twitter.