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VOL. 42 | NO. 15 | Friday, April 13, 2018

Tax overhaul will impact your purchase of a new home

By Bill Lewis

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If you want to finance the purchase of a home worth more than $750,000 this year and expect to take a deduction for mortgage interest on your federal tax return, it might be a good idea to speak with an accountant. The new federal tax law limits your options.

For everyone else buying a house or a condominium in the Nashville area, the law isn’t expected to have a negative effect.

In fact, Trey Lewis, vice president of Ole South, the largest home builder based in the region, says he believes the new law simplifies the decision to buy or not to buy. Many of the company’s customers are first-time buyers or people moving up to a larger home.

“It takes the tax implications out of the decision to buy,” he explains.

On paper the new law looks like it might hurt first-time buyers or anyone who can’t make a 20 percent down payment. They lose the deduction for mortgage insurance premiums, which are tacked on to their monthly payments.

The law also lowers the deduction for mortgage interest. Previously, home buyers could deduct interest on up to $1 million of a mortgage. That ceiling is now $750,000 for couples filing jointly and $375,000 for those filing separately.

The law also caps the deduction for state and local taxes, including property taxes and state income taxes, at $10,000 for couples and $5,000 for those filing separately. That is expected to be an expensive change in places with high taxes.

Tennessee is one of seven states with no tax on earned income, and property taxes are lower than in many jurisdictions. Most people won’t reach the cap.

And most homes cost much less than $750,000, so the interest cap doesn’t affect them. The Greater Nashville Association of Realtors reports that in February, the median price in the region was $289,093.

For buyers who buy their home with the assistance of the Tennessee Housing Development Agency, the typical home costs $125,000, says Patricia Smith, spokesperson.

“They don’t itemize” and instead simply take the standard deduction, Smith points out.

In fact, most taxpayers don’t itemize. A little more than 30 percent of taxpayers itemized deductions in 2016, the IRS reports. The majority took the standard deduction, and for them the law has good news.

The standard deduction has been raised to $12,000 for single filers, $18,000 for a head of household and $24,000 for married couples filing jointly.

Lewis says he believes that with or without the new tax law, buying a home makes sense.

“At the end of a 30-year mortgage, you have a home that’s paid for,” he says. “If you rent for 30 years, you’ve paid for that house but have nothing.”

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