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New Tax Plan Retains Many Incentives, But Buyers May Still Flee

After much haggling and debate, the new tax laws are now final. Here are the final details to the areas that affect real estate decisions the most.

Mortgage Interest Deduction:

The limit on deductible mortgage debt has been reduced to $750k (from $1M) for loans taken after 12/14/2017. Loans of up to $1M before that date are not subject to the new limit. Interest is still deductible on second homes and subject to the $1M/$750k limits. (Note: The House-passed bill would have capped the mortgage interest limit at $500k and eliminated the deduction for second homes.)

SALT Deductions:

State and local taxes (SALT) are deductible up to $10k. This includes property taxes. (Note: Original drafts from the House and Senate eliminated this deduction entirely.)

Capital Gains Exclusion:

Current law remains the same. If the homeowner(s) lived in the home 2 of the previous 5 years, $250k per homeowner could be excluded from the gain of the sale.

(Note: The Senate bill would have changed the rule to 5 of the past 8 years

and the House bill sought to phase out the exclusion.)

Moving Expenses:

Moving expenses are no longer deductible, except for members of the Armed Forces. (Note: The House bill would have eliminated the deduction for all filers, including the military.)


The most significant element of the new code is the neutralization of homeownership incentives by the doubling of the Standard Deduction. With the incentive to buy a home mathematically less appealing, it will be interesting to see the impact on buyer demand. If demand softens because fewer renters desire to own, it may slow the appreciation rate of home values. Perhaps the impact will not be very noticeable in the near term given the severe imbalance between the current supply and demand, but eventually the impact can be significant.

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