The Final tax plan that will affect Utah Home Buyers and Owners has just been approved. One of the biggest new changes will be the proposed doubling of the standard deduction. This will leave very few people to itemize deductions and write off their mortgage interest. The plan increases the standard deduction for individual taxpayers who don’t itemize from $6,350 to $12,000, and from $12,700 to $24,000 for couples.

My opinion is raising the standard deduction is great for families and most people will save money on their taxes as the majority of tax returns that I review have itemized deductions far below $24,000. I think this is a great thing that will save a lot of people a lot of money. The National Association of Realtors (NAR) believes that this removes an incentive for people to purchase houses and that home values will decline 10%. I do agree with NAR to a degree, but I don’t believe this section will truly hurt home owners or lower home prices. In all my years of helping people buy houses not one has bought a home for the tax write-off. It’s a bonus, but my experience is that people buy homes to house their families, stop throwing money away on rent, and to better prepare for retirement.

The Current tax code allows home owners to deduct mortgage interest on loans up to $1,000,000. The New tax Plan lowers that to $750,000 on mortgages.

Some great news is that the final tax plan eliminated the verbiage changing the capital gains exclusion for primary residences. Currently if you live in your home for 2 out of the last 5 years you will not pay any capital gains taxes. The initial plans were a big concern for me because both the senate and house proposed tax plans increased the live-in time period to five out of the last eight years. This means that owners would need to live in their homes for 5 years in order to claim the exemption. If they were to sell their house prior to living in it 5 years they would be required to pay capital gains taxes. I am glad this changed.

I think had this been approved changing the live-in time period for the capital gains exemption is a tragedy. This would have caused fewer people to sell and purchase a new house, further tightening home inventory. If an individual gets a raise and wants to upgrade their home, they may think twice if they’ve experienced home appreciation. They would not be able to use all of their equity for the down payment on the next house because they would have to pay hefty capital gains taxes. This may cause fewer entry level houses to come up for sale and less buyers looking for move up properties.

Lastly, are current home prices in a bubble and could they fall dramatically with this new tax plan?  I don’t think so. I see home prices continue to appreciate modestly for the foreseeable future. I do not see home prices decreasing until there is a significant change in employment. Part of the new tax plan is lowering the corporate tax rate from 35% to 20%. This is going to cause big corporations to have significantly more money in their pockets allowing them to hire more employees and increase wages. I feel that the lowering of the corporate tax rate will keep the unemployment rate at record low levels for an extended time. Until the labor market gets significantly worse people will continue buying and upgrading homes, especially as their wages increase. The lowering of corporate taxes means more home appreciation for longer. If you don’t own, the longer you wait the more you will pay for a house when you do buy.


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