2018 brings a number of federal tax law changes, which could affect Clark County’s real estate market. If you own real estate in Clark County, or are a Realtor, lender, builder, buyer, seller, renter or investor, you’ll want to pay attention to these changes.
It’s still anyone’s guess whether our market will heat up, cool down or simmer along, but these new tax laws on real estate expenses and income will tweak the recipe that has kept Clark County’s market cooking right along in the last five years. The new year begins with new commercial and multi-family construction activity visible throughout the county to join an already strong housing market. Here are some highlights of the new changes to federal tax laws:
Previous law: Taxpayers can deduct interest payments on mortgage debt of up to $1.1 million, including up to $100,000 of home equity debt.
New law: For existing mortgages, there is no change. But the deductible limit drops to $750,000 for new debt incurred after Dec. 31, 2017. And, after this year (2017 taxes), homeowners may no longer claim a deduction for interest paid on existing or new home equity debt.
State and Local Taxes
Previous law: Taxpayers can deduct state and local property and sales taxes.
New law: This deduction will be capped at $10,000.
Capital gains are the profits realized from the sale of assets such as real estate.
Previous law: Profits on the sale of assets held for more than one year are eligible for an income tax rate lower than the taxpayer’s ordinary income tax rate. Turbo Tax explains the 2017 tax rates this way: “For 2017, the long-term capital gains tax rates are 0, 15 and 20 percent for most taxpayers. If your ordinary tax rate is already less than 15 percent, you could qualify for the 0 percent long-term capital gains rate. For high-income taxpayers, the capital gains rate could save as much as 19.6 percent off the ordinary income rate.”
New law: No changes.
Pass-Through Business Taxes
Previous law: Businesses organized as sole proprietorships, LLCs and partnerships don’t pay corporate tax rates. Instead, the owners pay individual income taxes on their share of business income – they’re called pass-through business taxes. Those tax rates are the same as the individual income tax rates.
New law: Business owners can take a 20 percent deduction on pass-through business income, with limits for those earning above $157,500 (single) and $315,000 (married, filing jointly).
Investment property owners will continue to be able to defer capital gain taxes using 1031 tax-deferred exchanges. No new restrictions on 1031 exchanges of real property were made in the new tax law, though 1031s involving personal property are no longer allowed.
Some property owners such as farmers and ranchers and other business owners will receive a new tax benefit, the ability to immediately write off the cost of new investments in personal property. This is commonly referred to as full or immediate expensing.
The new tax law continues the current depreciation rules for real estate.
Title Company Resources
Your title company can be a resource for real estate professionals and investors. Title companies maintain a database of all county properties, including sales amounts, and offer a variety of products, including title insurance and other informational property reports, escrow and builder/developer assistance. They won’t do your taxes, but can help you if you are buying, selling, refinancing or developing real estate. Through their network of affiliated companies and other resources, they can assist you with properties located anywhere in the country.
Scott Hogan is manager of Clark County Title Company. He is an attorney licensed to practice in Washington and Oregon, and native of Vancouver. Readers are advised that no legal or tax accounting advice is intended by this article, and that independent counsel on these matters is highly recommended.