Now that winter is more than halfway over, Floridians can gaze at their calendars as they anxiously await… tax season. For many, preparing their income tax returns is a stressful endeavor. But the recent changes to the federal tax code may be making this time even more unsettling for lots of Americans – especially if they’re seeing negative news articles about the potential effects on U.S. households. And as a condominium owner, you may be wondering: how will this tax reform impact me?
The Arrival of Tax Reform
The Republican-led Congress began crafting tax reform legislation this past fall. After some negotiations between lawmakers and a reconciliation of the House and Senate versions of the bill, the Tax Cuts and Jobs Act was signed into law by President Trump on December 22. The 558-page bill marked the first major tax code overhaul in over three decades. Highlights included re-categorizing the personal income tax brackets (the highest tax rate shrinks to 37% for an adjusted gross income of $500,000), eliminating the federal mandate to purchase health insurance, slashing the corporate tax rate from 35% to 21%, and capping the deduction of state and local taxes by households at $10,000.
Smaller Mortgage Interest Deduction
For homeowners, perhaps the most notable initiative is the lower maximum amount of mortgage interest that can be deducted on their income tax return. Going forward, taxpayers can deduct the interest on their mortgage debt of up to $750,000, which is down from $1 million. The new figure represents a Congressional compromise, as some lawmakers wanted to slash that cap to $500,000. This change is not expected to impact the vast majority of homeowners in the U.S., as the median home price is far lower.
Ramifications of Mortgage Interest Deduction Changes
However, the lower mortgage interest deduction cap might have an impact on households who want to purchase a second home. The $750,000 maximum applies to the total amount of mortgage debt held by a taxpayer, not the amount of debt owed on each individual home. Also, some real estate professionals are concerned about how this provision might affect the supply of homes in the high-end market. All of the mortgages held by homeowners as of December 14, 2017 were grandfathered in at the old interest deduction threshold, meaning that these taxpayers can still deduct up to $1 million in mortgage interest.
It’s Not All Bad News
Many U.S. households with higher incomes won’t be forced to compute and pay what is known as the Alternative Minimum Tax (AMT). The purpose was to prevent high-income earners from claiming so many deductions that they wouldn’t have to pay taxes. The thresholds for triggering the AMT payments have been raised significantly. Also, the Tax Cuts and Jobs Act severely gutted the “estate tax,” which levies taxes on the wealth of Americans who pass away. Individuals could shelter up to $5 million in assets from being taxed; but the new law raises that threshold to $11.2 million.
Get Professional Help
All individuals and households are different, and a tax professional should be consulted for questions related to a specific tax filing. Remember that these changes won’t take effect until tax year 2018, meaning that the taxes you’ll be filing soon will be subject to the same laws as last year. The takeaway? Except for a small minority of households, the Tax Cuts and Jobs Act will not have much of an impact on the income taxes of condo owners going forward. So that’s one less thing for condo owners to worry about.