We are just days from the start of the New Year, and now that President Trump has signed sweeping tax reform legislation into law, many homeowners and potential buyers are wondering how it will impact the real estate market in Washington state. In addition to talking to your tax advisor, the National Association of Realtors recently released reports on how the bill will affect each state, while The Washington Post looked more broadly at the general impact, from 1031 exchanges and recovery rules to mortgage interest deductions. Below we’ve highlighted the provisions that will have the greatest impact on the industry, which will be key as you prepare for the New Year.
- 1031 exchanges will remain eligible for deferral, however personal property will no longer qualify at the start of 2018.
- Low cost recovery rules have generally been maintained; however, recovery periods will be much longer:
- 20 years for qualified improvements
- 30 years for residential rental properties
- 40 years for nonresidential properties
- Carried interest will be placed under a three-year holding period when garnered under certain types of partnerships, which include hedge and private equity funds, and real estate holdings.
- Business interest deduction will still allow for net interest expenses, but “taxpayers must elect out of the new interest disallowance regime.” This also applies to hotel operation and management, though corporations may qualify for exemption.
- Homeowners can expect to see a lowered debt cap for Mortgage Interest Deduction (at $750,000) in addition to more restrictions when it comes to deducting mortgage interest on a second home. The Capital Gains Exclusion for a primary residence will be sustained, and does not extend the amount of time a taxpayer must own a residence in order for it to qualify as their principal property for tax purposes.