2018 Trump Tax Plan Affect on Real Estate in DC/MD/VA
How the 2018 Trump Tax Plan Will Affect Real Estate
With Congress passing the Tax Cuts and Jobs Act in time to send to President Trump before Congress, many people are wondering how it will affect real estate in Arlington, VA and the surrounding areas. Many home buyers and sellers are wondering how it will affect them if they buy or sell a home. Like most major legislation passed in the last decade, the tax bill was supported strictly along party lines (there was no Democrat support) so the bill was not without controversy. We are not going to look at the politics of the bill, but rather how the 2018 Trump Tax Plan could impact your real estate decision.
What Will Change with the 2018 Trump Tax Plan
- Overall rates will go down. The old rates were (10, 15, 25, 28, 33, 35, and 39.6) The new rates will be (10, 12, 22, 24, 32, 35 and 37)
- The standard deductions will double. The old deductions for people that do not itemize were $6,350 for singles and $12,700 for married couples. That will increase to $12,000 and $24,000.
- But personal exemptions will go away. Under the old system you could take an exemption of $4,050 for yourself, your spouse and each dependent. The new bill eliminates that which for a family with 2 or more children would negate the benefit of the higher standard deduction.
- Mortgage Interest Deduction (MID) will change. Existing mortgages will still be deductible up for loan balances up to $1M. New mortages will be deductible up to $750k.
- State and Local Tax Deductions will be limited. Under the old tax system there was no limit in the amount of deductions you could take for state and local taxes. This typically included income tax and property tax. Under the new rules this will be limited to $10,000, which will favor lower income states.
- The Child Tax Credit is Doubling. The child tax credit will increase from $1,000 to $2,000 and up to $1,400 will be refundable. This credit is subject to income restrictions .
- Business Tax rates are going down. The corporate tax rate is going down from 35% to 21%. Businesses that are structured as pass through entities that are normally taxed at the owners individual rate can deduct up to 20% of their income for the first $315,000 of income. Some types will be able to deduct more.
So What Do All These Tax Changes Mean?
Only time will give a complete answer of all the implications of these changes. According to the Tax Policy Center, over 80% of taxpayers will pay less taxes. Less than 5% will pay more. It is too early to tell what the business tax changes will bring, but so far the reaction from business has been good with several companies announcing they are giving pay raises, bonuses or increasing capital investments that will lead to more jobs.
What Does it Mean for Real Estate in Virginia, DC, and Maryland
With the reduction on the mortgage interest deduction (MID), the $10,000 limit on State and Local Income Taxes (SALT) and the doubling of the personal exemption, less people will get benefits from the mortgage interest deduction. However, with lower overall rates, most people will be paying less overall in taxes and therefore have more money to spend on housing. Since DC and Maryland have higher tax rates than Virginia, buyers in Virginia will benefit more from the bill than those in DC or Maryland.