DeKALB – When Congress passed the Tax Cut and Jobs Act, some long-standing programs were cut, including several that incentivized homeownership, to make way for other deductions and tax cuts.
Although the act might affect home values and sales, however, it doesn’t appear the effect will be large or immediate.
Changes in possible deductions for mortgage interest, property taxes, moving expenses and other homeownership-related expenses have changed or been eliminated. But for the average homeowner, it might not be noticeable.
“Real estate trends happen over a longer time,” said Jerry Wahlstrom, a real estate agent in DeKalb with McCabe Realtors. “Any change in the market hasn’t happened yet.”
Officials with the National Association of Realtors said the association expects slower growth in home prices and now is predicting 1 percent to 3 percent increases.
This is in part because some of the specific benefits in the tax code for homeownership, such as the ability to deduct mortgage interest, were lessened.
Previously, interest on a mortgage of up to $1 million was deductible, but that limit has come down to $750,000. Although that does not affect the average homeowner in DeKalb County, some will feel the effect.
“There are a few houses that would apply to,” Wahlstrom said.
Those with an existing home or mortgage will be grandfathered in and still be able to deduct the $1 million limit, but any new home will be subject to the limit. Any refinancing also will be grandfathered in.
Keeping the deduction in place for most homeowners, however, is a good thing, Wahlstrom said, if not ideal.
It also is an example of how things changed from the original iterations of the bill proposals introduced in both the House and Senate. In those proposals, the maximum would be dropped to $500,000 and there would be no deductions for any second homes.
When Congress passed, and President Donald Trump signed, the Tax Cuts and Jobs Act at the end of last year, it was the first major overhaul to the U.S. tax code in decades. To simplify the code, it doubled the standard deduction for most people, but at the same time, it eliminated other deductions.
The standard deduction now will be $12,000 for individuals and $24,000 for married couples.
In the version of the bill signed by the president, interest on second homes also is deductible with the same cap.
“If you took away the deduction for interest on real estate, it would be devastating,” Wahlstrom said.
Homeowners used to be able to deduct all of the state and local property taxes they paid each year, with no upper limit. After the new tax code was passed, however, that number was capped at $10,000, a move that will affect higher-taxed states, such as Illinois, New York and California.
Again, in the first drafts of the bill, that deduction was going to be eliminated entirely.
“The final bill, while less beneficial than current law, represents a significant improvement over the original proposals,” a report by the National Association of Realtors said.
The ability to deduct moving expenses was eliminated, however, except for active-duty members of the military.
Wahlstrom said he doesn’t see there being a sudden or immediate effect on local home values from the tax law. It would take a major calamity, such as Northern Illinois University leaving, to affect the prices, he said.
Commercial real estate managed to retain most of its benefits, even though the initial bills meant to strip away many of them, according to the NAR.
Credits such as the low-income housing credit and rehabilitation credit, which provides a 20 percent credit for certified historic structures, will remain in place, although some will be altered.