How The New Tax Reform Law Impacts Real Estate & Lending

Jay Miller
Mortgage Loan Originator
NMLS 657301
Compass Home Loans
MLOC # 1194719

The new Tax Cuts and Jobs Act (TCJA) passed by the U.S. Congress and signed into law by the President in December 2017 was a sweeping tax law that has nationwide ramifications for the real estate market and mortgage lending. Here in Hawaii, one of the main concerns was the potential elimination of the popular Mortgage Credit Certificate (MCC) program. Fortunately, this popular first-time homebuyer program that provides an annual tax credit on the first 20% of mortgage interest paid has remained intact without any significant changes. Consult with a lender in Hawaii approved to provide the MCC as part of your home purchase for additional information about the qualifications and benefits of this program.

Several additional concerns by Hawaii residents included the possible reductions in deductible mortgage interest, home equity loan deductibility, and the impact on rental and vacation properties. The following are the other main changes effective with the new tax reform law that address these concerns:

• For mortgages taken out after December 14, 2017, only the interest on the first $750,000 of mortgage debt is deductible. That includes the combined total of any first and second mortgages on the primary residence (as long as the second mortgage debt was obtained as part of the purchase or improvement of the property).

• For home equity lines and loans (2nd mortgages), the biggest change is the elimination of the deductibility of mortgage interest for equity lines and loans up to $100,000, when the funds are used for vacations, college tuition, payoff of other debt or anything else unrelated to the purchase or improvement of the primary residence. This affects interest on all home equity lines and loans even if the loan was taken out before December 15, 2017. You can still take out home equity lines or loans to buy other property, such as an investment property, but would deduct the interest against the income of the other property.

• The deduction for all state and local taxes cannot exceed $10,000, combined. These taxes include state and local income, sales taxes, and real property taxes.

• Rental property and second home property tax computations remain the same going forward.

• The capital gains tax exemption for owner occupant home sellers is unchanged in the new tax reform law at $250,000 for single filers and $500,000 for married couples. The same requirements for occupying the property as your primary residence two out of the previous five years remains. There may be some capital gains liability if the home was used as a rental property just prior to selling depending on how many years it had been since the owner occupied the property as their primary residence.

Home owners and those seeking to become home owners should seek independent tax advice from a Certified Public Accountant (CPA) or tax advisor to understand how the new Tax Cuts and Jobs Act (TCJA) impacts them personally as every individual’s financial situation and goals are unique. For more information on home mortgages, the MCC program, or on Compass Home Loans, please contact a Compass mortgage professional at (808) 518-3650 or www.compasshawaii.com.