President Trump signed into law landmark tax reform legislation.
Reprinted with permission from Texas Builder magazine, courtesy of National Association of Home Builders.
“NAHB commends President Trump and members of Congress for their hard work and dedication in crafting this once-in-a-generation overhaul of the nation’s tax code,” said NAHB Chairman Granger MacDonald. “Providing tax relief for hard-working families and creating a more favorable tax climate for small business will make the economy more vibrant and competitive. In turn, this will boost the housing sector, which represents roughly one-sixth of the U.S. economy. Housing not only equals jobs, but jobs mean more demand for housing. For every house that is built, three temporary and one permanent job is created.”
Throughout the tax reform debate, NAHB and its grassroots efforts were at the forefront of the legislative process. NAHB held several meetings with House Ways and Means Committee Chairman Kevin Brady, along with other committee members and staff, while builders engaged with key House and Senate lawmakers in their home districts and at their offices on Capitol Hill.
Thanks to the efforts of the entire Federation, NAHB achieved significant victories on the real estate exception to the business interest deduction, second homes, private activity bonds, the capital exclusion, and many other provisions.
Under the new law, the majority of taxpayers will receive a tax cut, including working class homeowners and renters, small business owners and our members who are engaged in al aspects of the residential construction sector. Lower tax rates will spur job and economic growth, and that is good for housing.
Here is an overview of the Tax Cuts and Jobs Act, with all changes taking effect for the tax year starting Jan. 1, 2018:
• Mortgage interest deduction. Retains the mortgage interest deduction and the deduction for second homes, but reduces the mortgage interest cap from $1 million to $750,000.
• State and local property taxes. Allows taxpayers to deduct up to $10,000 of state and local taxes, including property taxes and the choice of income or sales taxes.
• Capital gains exclusion. Maintains existing law that allows homeowners to exclude up to $250,000 (or $500,000 for married couples) in capital gains on the profit from the sale of a home if they have lived in the house for two of the last five years.
• HELOC. Eliminates the deduction for interest on home equity loans.
• Private activity bonds. Retains private activity bonds (PABs), which will enable the Low Income Housing Tax Credit to maintain its effectiveness as the most indispensable tool for the production of affordable housing. Without PABs, we would face the loss of more than 788,000 affordable rental units over the next decade.
• Alternative Minimum Tax. Eliminates the Alternative Minimum Tax (AMT) for corporations and increases the AMT exemption amounts and phase-out thresholds for individuals.
• Individual tax brackets. Retains seven tax brackets, with rates ranging from 10 percent to 37 percent. This will provide tax relief for individuals and small businesses and represents a tax cut for most taxpayers.
• Estate tax. Doubles the estate tax exemption.
• Carried interest. Retains existing carried interest rules, but assets must be held for three years.
• Pass-through deduction. Allows most taxpayers with pass-through income to deduct 20 percent of that income based on wages or on wages plus a capital element.
• Business interest deduction. Provides the taxpayer a choice of making a one-time election for a deduction limited to 30 percent of adjusted gross income; or for real estate, a 100 percent deduction for business interest, but with certain trade offs.
• Like-kind exchanges. Preserves the benefit for real estate investors to make tax-free exchanges of property, commonly referred to as “like-kind” exchanges.
• Multifamily depreciation. Gives the taxpayer the choice of taking 27.5- or 30-year depreciation, depending on how they elect to treat their business interest.
• Individual tax provision sunsets. Almost all individual tax elements — mortgage interest, state and local property taxes, individual brackets, etc. — expire at the end of 2025. Unless Congress acts, starting in 2026 these modifications will revert back to the tax code as it existed in 2017.
Be sure to check with your tax professional regarding details on the new tax law. The above items are offered as general descriptions only and do not constitute tax or legal advice.