A New Strategy for Your House Thanks to the Trump Tax Plan


This post is in: Blog, Real Estate
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The Trump Tax Plan made several radical changes to our taxes. Here are four that will possibly impact your home deduction.

  • Itemized deductions have been greatly limited. For most people, there are only 4 remaining: medical expenses over 7.5% of adjusted gross income, income tax and property tax (limited to $10,000 in total), mortgage interest (limited to $750,000 of acquisition indebtedness) and charitable donations.
  • Standard deductions have been increased. That means more people won’t itemize and so all the itemized deductions are lost.
  • Your mortgage interest is limited to $750K of acquisition indebtedness for new property.
  • Your total property tax and state income tax combined is limited to $10,000.

On one hand, you don’t have much left you can deduct and on the other hand, the standard deduction makes it better and easier to deduct.

What about the current idea that you should just buy bigger and bigger houses because it’s all a write-off anyway?

Nope. Doesn’t work anymore.

There are over a half dozen strategies you can use to keep your deductions that the Trump Tax Plan is trying to take away. Learn more in Taxmageddon 2018, available on Amazon in a week! https://www.ustaxaid.com/shop/taxmageddon-2018/

Now let’s look at one of the strategies regarding a personal home and write-offs.

Strategy #20: Rent the House You Live in. This strategy might seem a little extreme, especially if you’re firmly ensconced in your current home. In general, though, let’s take a look at what the new tax law changes really mean. We’ve always heard that it’s a smart financial and tax strategy to own your home. It’ll go up in value, you won’t be throwing money away on rent plus the government will let you take a tax deduction for interest on the loan to buy it.

After 2008-2009, a lot of people realized that real estate has no guarantee that it will always go up in value. And now, your deductions will be limited for property tax and mortgage interest. You might just find the limited write-offs don’t mean a thing to you since you will be better off using the higher standard deduction than itemizing your deductions.

So, what if instead of buying your own home, you bought a rental? Expenses associated with the rental are fully deductible. Even if your income means you can’t immediately take a deduction, the loss is just suspended, not lost.

Another idea works if you can find someone who wants to live in a house that is similar to yours. Buy their house and they rent it from you. They buy your house and you rent it from them. You may even have options to repurchase each other’s houses at a later date.

The main point of all of this is that our view of our personal residence is changing. Owning your own personal home no longer provides the tax advantages that you’re used to planning on.

What will you change? And more importantly, WHEN?



2 Comments

  1. Diane Kennedy says:

    Maria,

    There was a change made a few years prior that isn’t talked about much online. It’s important in your case.

    The rule now is that you need to have at least 2 years with it as your primary residence, but then you have to do a pro-rata calculation based on how many years it was rented post 2009. The more years it was rented, the lower the amount you’ll be able to exclude.

    A strategy here would be to count on living in it longer so that it “dilutes” the impact of the rental period.

  2. Maria says:

    Prices for single family houses are going through the roof in our area and we think it’s a good time to sell our house. We have a single family rental house that our tenant moved out of after 10 years and are considering doing some minor rehabbing and moving into it ourselves. Ultimately, we may want to sell this second house or rent it out again, if we decide to leave our area.

    As I understand it, it used to be that if we made this second house our primary residence, we could live in it at least for 2 years and sell it in a tax advantaged way. Has that changed with the new Trump tax plan? Thanks for your input.

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