How the Senate Tax Reform Bill Would Affect DC-Area Homeowners

  • December 4th 2017

by Nena Perry-Brown

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How the Senate Tax Reform Bill Would Affect DC-Area Homeowners: Figure 1
North Capitol Street looking south. By Ted Eytan.

Just before 2am on Saturday morning, the U.S. Senate passed the Tax Cuts and Jobs Act, a sweeping tax reform bill. As the final version contained several last-minute revisions, UrbanTurf has summarized how the bill would impact current and aspiring homeowners and real estate holders below.

  • Rather than eliminating the state and local tax deduction entirely, taxpayers can deduct up to $10,000 in state and local property taxes from their taxable income.
  • While the personal deduction is nixed, the standard deduction was more than doubled from $11,700 to $24,000.
  • A provision that would have allowed taxpayers to deduct moving expenses has been eliminated.
  • The capital gains tax exemption requirements are more stringent. Homeowners must live in their homes for five of the past eight years rather than two of the past five in order to avoid paying tax on the first $250,000 or $500,000 in profit after a sale for individuals or couples, respectively.
  • The inheritance tax threshold has doubled to $11 million for individuals and $22 million for couples.
  • Under the bill, homeowners can claim a deduction for interest paid on mortgage debt up to $1 million.
  • In order to calculate a depreciation deduction for their taxes, residential landlords will be able to divide the value of the structure by 25 years rather than 27.5 years, increasing the annual amount of the deduction.

One of the primary concerns that the bill posed for the DC area housing market was that a lowered mortgage interest deduction would constrain housing supply even further by discouraging homeowners from moving to more expensive homes and steering prospective homeowners to properties with mortgages under $500,000, an ever-narrowing sector of the market.

The bill still needs to be reconciled with the tax reform bill that the House of Representatives has put forth. As most recently presented, the House bill would include a $500,000 mortgage interest deduction cap, although the majority of the other housing-related provisions in the bill are nearly identical to those put forth in the Senate.

Correction: The point about the capital gains tax provision has been edited to reflect the new requirement that a homeowner reside in their house for five of the past 8 years in order to avoid paying tax on a portion of the gains from a sale.

This article originally published at https://dc.urbanturf.com/articles/blog/how_the_senate_tax_reform_bill_would_effect_dc_area_homeowners/13317.

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