06 Feb TAX REFORM & HOUSING
With the Tax Reform bill now signed into law, many homeowners will find that this important piece of legislation restricts
some of the benefits they have enjoyed from owning a home. Although the impact will mainly hit the higher end of the
housing market, there are some potential tax deductions that could impact the way they structure their mortgages.
Let’s look at what the changes could mean for current and future homeowners:
Lower Mortgage Interest Deduction
In the past, homeowners have been able to deduct interest on up to $1,000,000 of mortgage obligation.
For homes purchased now and in the future, this limit will be reduced to $750,000. For those who already
owned their homes at the time of the Tax Reform bill passing, they will be grandfathered into the prior
Impact: Since this portion of the bill only impacts high valued homes, we anticipate this will have little impact on the
overall housing market. People looking at mortgage balances of over $750,000 will likely still purchase homes,
even if they lose the deduction on up to $250,000 of the mortgage balance.
Loss of Tax Benefit for Home Equity Loans
With property values moving higher, there has been a rush of people taking out home equity loans to make
use of their increased available equity. Under old tax rules, a homeowner was able to deduct interest on
up to $100,000 of the balance of an equity loan. This tax loophole has been eliminated.
Impact: We all remember back in 2008 and earlier when homeowners were taking out home equity loans to
purchase boats, make improvements, take vacations or just spoil themselves at the mall. This created major
improvements to the amount of money flowing through the U.S. economy. With values reaching new highs, this
trend has started once again.With the tax advantage no longer available, it will likely deter some people from
taking out home equity loans. Therefore, we could see a negative economic impact. People with home equity
loans will likely consider rolling them into a primary mortgage, which may create more tax advantage and
interest rate stability long term.
Limit on Property Tax Deduction
One reason that has prevented some homeowners from protesting their property taxes is that they have
received 100% of the property tax payments as a write-off from their taxable income. Under the new
law, the property tax and state income tax write-offs have been limited to a combined $10,000 reduction
from taxable income.
Impact: In Utah, the state income tax rate is 5%. This is a flat tax, so there are no itemizing deductions on
a Utah state tax return. If a homeowner has property tax of $2,500, they would be allowed to have $150,000
in gross income and still receive the full tax savings of owning a home. Therefore, the impact will mainly be
for higher income earners.
Given that the average Utah state income tax collection is less than $1,000 per year, most residents will not