Southern California homeowners and potential buyers are rattled by the anticipated fallout from the Tax Cuts and Jobs Act. Especially because of the lower tax breaks for home ownership in the coming decade. 

All individual provisions are generally effective after Dec. 31 for the 2018 tax filing year and expire Dec. 31, 2025 unless they fall under certain exceptions. 

Don’t stress out just yet though…

Interest rates are still exceptionally low (by historical comparisons) and the limits for federally-insured home loans will increase again in 2018. Qualified buyers in LA and Orange counties can get a $679,650 single-family home loan from the FHA (Federal Housing Administration) with a down payment of 3.5% or more.

Here’s a snapshot of other tax changes that will impact homeowners:

  • Congress considered tightening the requirements for deducting capital gains deductions. The proposal would have required homeowners to live in the home for 5 of the last 8 years, instead of the historic standard of 2 of the last 3 years. This idea was cut from the final bill so there are NO changes to capital gains deductions. 
  • The new tax law reduces the limit on deductible mortgage debt to $750,000 from $1 million for new loans issued after Dec. 14. There’s also the infamous $10,000 cap on itemizing state and local taxes, which have historically been vital for costly California homeownership.
  • Under the new law, homeowners can only deduct home equity loans if they were used to remodel or improve the residence. The final bill repeals the deduction for interest paid on home equity debt through Dec. 21, 2025. Interest is still deductible on home equity loans (or second mortgages) if the proceeds are used to substantially improve the residence.
  • The standard deduction was increased to $12,000 for single individuals and $24,000 for joint returns.
  • By doubling the standard deduction, Congress greatly reduced the value of the mortgage interest and property tax deductions as an incentive to purchase a home. Congressional estimates indicate that only 5% to 8% of filers will now be able to itemize these deductions. Under this law, more than 90% of taxpayers will see no difference, tax-wise, in renting from owning.
  • Homeowners may refinance mortgage debts, existing as of Dec. 14, up to $1 million and still deduct the interest if the new loan isn’t larger than the amount of the mortgage being refinanced. Homeowners should review whether their primary residence debt is all in one loan less than $750,000. If it’s not, you may want to consider consolidating them into one.
  • Interest is deductible on second homes, but subject to the new caps.
  • The law provides a deduction for loss of a home only if it’s attributable to a presidentially-declared disaster.
  • The law repeals moving expense deduction and exclusion, except for military service members. 

The National Association of Realtors has a comprehensive briefing on what this law means for homeowners. To learn more, visit the NAR.

This content is not the product of the National Association of REALTORS®, and may not reflect NAR's viewpoint or position on these topics and NAR does not verify the accuracy of the content.