The 2017 tax season is almost behind us and we will soon be able to breathe a sigh of relief. The great news heard around the US is that starting in 2018, the tax code has been simplified. Right?  Signed into law in December, the Tax Cuts and Jobs Act Bill is over 600 pages long. It’s no wonder many lawmakers, CPAs and individuals are still confused about what it all means. At Golub Group, we have fielded many questions from our clients about how the new tax law will affect them.  As many of our clients have a significant amount of wealth in real estate, many of these questions have revolved around their residential and investment properties.  As in most areas of finance, having a solid plan to mitigate any foreseen negative effects is the most important thing you can do. We highly encourage you to speak to your CPA and Golub Group Financial Advisor to understand how the changes will affect you specifically. In the meantime, we have outlined the key changes we have been receiving the most questions about.

Here are the tax items most likely to affect taxes on your personal residence:

  1. Reduced limit on deductible mortgage debt to $750,000 for new loans taken out after 12/14/17;
  2. Limits the deduction of state and local property taxes and income or sales taxes to $10,000 for married filers ;
  3. No deduction of interest on home equity debt altogether;
  4. Thanks to the Real Estate Lobby, the following items have been retained in the final bill:
    • Exclusion of $500,000 of gain for married filers ($250,000 for single filers) as long as they have lived in the residence for 2 out of the past 5 years;
    • Exclusion of taxes on §1031 like-kind real estate exchanges.

So what can be done? Californians will be disproportionately affected by the $10,000 limit on state and property tax deductions and the $750,000 limit on deductible mortgage debt.  For those of you adversely affected, there are very few strategies to mitigate the effects of these changes. Business owners who work out of their home can write off a portion of the interest and property taxes as a business expense. If you don’t already have a business and are considering it, now might be the time to become more entrepreneurial. If you have a home equity loan on your primary residence, talk to your Financial Advisor about the possibility of paying off the equity loan with outside funds or refinancing a first mortgage to include the line of equity. We will help you compute the after-tax financial impact to you of these or other scenarios.

Rental property owners will not be as drastically affected by these changes.  You are still able to offset unlimited amounts of property taxes and mortgage interest, including home equity loan mortgage interest, against rental income. This is great news for investment property holders.

If you find yourself stuck with a higher tax bill this year, keep in mind that most of the changes affecting individual taxpayers will expire in 2025. Until then, the best defense is knowledge and awareness of your individual situation. Speak to your Financial Advisor to answer your questions or update your Financial Plan.  If you don’t have a Financial Plan, there’s no time like the present to gain clarity of your financial future.