Exclusion of Gain on Sale of a Principal Residence

• The final bill retains current law. A significant victory in the final bill that NAR achieved.
• The Senate-passed bill would have changed the amount of time a homeowner must live in their home to qualify for the capital gains exclusion from 2 out of the past 5 years to 5 out of the past 8 years. The House bill would have made this same change as well as phased out the exclusion for tax payers with incomes above $250,000 single/$500,000 married.

Mortgage Interest Deduction

According to Investopedia.com: Mortgage Interest Deduction is a common itemized deduction that allows homeowners to deduct the interest they pay on any loan used to build, purchase or make improvements upon their residence. This deduction is offered as an incentive for homeowners.

• The final bill reduces the limit on deductible mortgage debt to $750,000 for new loans taken out after 12/14/17. Current loans of up to $1 million are grandfathered and are not subject to the new $750,000 cap. Neither limit is indexed for inflation.
• Homeowners may refinance mortgage debts existing on 12/14/17 up to $1 million and still deduct the interest, so long as the new loan does not exceed the amount of the mortgage being refinanced.
• The final bill repeals the deduction for interest paid on home equity debt through 12/31/25. Interest is still deductible on home equity loans (or second mortgages) if the proceeds are used to substantially improve the residence.
• Interest remains deductible on second homes, but subject to the $1 million / $750,000 limits.
• The House-passed bill would have capped the mortgage interest limit at $500,000 and eliminated the tax deduction for second homes.

Deduction for State and Local Taxes

• The final bill allows an itemized deduction of up to $10,000 for the total of state and local property taxes and income or sales taxes. This $10,000 limit applies for both single and married filers and is not indexed for inflation.
• The final bill also specifically precludes the deduction of 2018 state and local income taxe prepaid in 2017.
• When House and Senate bills were first introduced, the deduction for state and local taxes would have been completely eliminated. The House and Senate passed bills would have allowed property taxes to be deducted up to $10,000. The final bill, while less beneficial than current law, represents a significant improvement over the original proposals.

Standard Deduction

• The final bill provides a standard deduction of $12,000 for single individuals and $24,000 for joint returns. The new standard deduction is indexed for inflation.
• By doubling the standard deduction, Congress has greatly reduced the value of the mortgage interest and property tax deductions as tax incentives for home ownership. Congressional estimates indicate that only 5-8% of filers will now be eligible to claim these deductions by itemizing, meaning there will be no tax differential between renting and owning for more than 90% of taxpayers.