There has been much discussion, debate, and confusion over the President’s New Tax Plan that has passed Congress and will go into affect this year (2018). Whether I am in favor with this plan or not, I would like to discuss some benefits for new home buyers, and there are some.
I would first like to preface that my local real estate community, which is Hampton Roads or South Eastern Virginia, will not be affected as much by the mortgage interest caps on deductions as New York or California, where many homes are well over $750,000. Unless your home is waterfront or of quite large square footage, most real estate in this vicinity is below $750,000 and owners will be able to deduct all of their mortgage interest on their 1040’s.
Secondly, and after much research, home owners will still be able to deduct the mortgage interest on their 2nd homes following the same caps now placed on primary homes. The original version of the tax plan eradicated deductions on 2nd homes. This move would have hurt our region since many buyers or non-residents purchase homes by our lovely beaches and other attractions as second homes. Though the argument is that the tax plan favors the rich, a tax cut is a cut in taxes for everyone. In other words, whatever tax bracket a buyer is in, by February they will be taking home more pay and depending on their salaries, that income can be an extra $200 – $300 a month. There are several good outcomes from this.
- Home buyers who could not be approved because of low income levels, may be able to be approved now.
- Home buyers may be able to be approved for a home for which they were ineligible before the tax plan.
- If a buyer can’t be approved now for a mortgage because of outstanding debt, he/she will have more income now to pay down that debt to become eligible and hopefully in a shorter amount of time.
- With the higher standard deduction, many people will most likely have a higher tax refund which can be applied to a down payment for a new home.
Now, it is time for my disclaimer. I am not a tax professional or intend to be one. You must always consult with your tax accountant or other tax professional on these matters. I am speaking in general terms, and each individual’s situation is unique.
Bottom line, higher incomes will always benefit you when searching for a mortgage as long as you keep your debt current and at low levels.
There may be some obstacles down the line. As the economy grows and gets stronger, we will anticipate higher mortgage rates, higher home prices, and perhaps, inflation. I urge you if you wish to buy, do so before these other events come to fruition.