The current tax proposal under consideration in Congress has a direct impact on homeowners. Essentially, the proposal removes deductions for state and local taxes paid on property that a homeowner can claim on federal tax returns. This can result in an increase in one’s federal tax bill. A publication in The Washington Post discussed this issue, noting this is just one of many tax obligations home owners should note that could change as a result of tax reform.
What additional tax benefits connected to home ownership are threatened? The piece notes that capital gains exclusions from home sales and other deductions are also at risk. Currently, owners can deduct a gain of up to $500,000 for a married couple or $250,000 if single. This is allowed if the owner has lived in the home for two out of the last five years. The current proposal would increase this requirement to five of the last eight years.
The home mortgage interest deduction is also on the chopping block. Under current tax law, those who itemize their deductions can deduct up to $1,000,000 in mortgage interest payments for a primary residence and secondary property. The House bill grandfathers in current mortgages but reduces the cap to $500,000 for new mortgages and removes the option to include a second property. The Senate bill does not make this change. An agreement has yet to be reached.
What does this mean for taxpayers? It is unclear what version of reform Congress will pass, if any. Regardless, the debate serves as a reminder of the impact of the changes of tax law. These changes can directly impact taxpayers. The changes to tax law can result in an unexpected increase in one’s tax bill. In the event a tax bill becomes unmanageable, legal remedies available to settle tax obligations with the IRS. Contact an attorney to discuss your options.
