Some buyers I have talked to have expressed concern about how the new tax laws will affect home ownership. However, looking at the 2017 Tax Cut and Jobs Act passed by Congress and signed by the President; we see that it continues to treat real estate as a favored investment.
Tax laws are in place whether you are considering a home to either live in as your primary residence or to use as a rental property. There are other dynamics to be concerned about that are not, like rising mortgage rates and home prices.
Reasons to consider buying now…
Mortgage interest deductions remain intact for most taxpayers. Capital gain exclusion for principal residences up to $500K for married couples, $250k for singles also remains in place. Taxpayers can elect annually to take a newly increased standard deduction or itemize deductions depending on which will benefit them the most. Therefore you can see what fits your financial situation best.
Most studies in the Phoenix area show that a house payment, including taxes and insurance, will likely be cheaper than paying rent. Rental rates have continued to skyrocket, so in the future that difference will be even greater.
If you’re thinking about renting vs. purchasing, keep in mind that with a 30 year fixed rate mortgage (which most borrowers are eligible for) the interest rate will lock in your principal and interest payment for the term of the mortgage. That means that your monthly payment will not increase for the term of the mortgage versus renting with a lease that will potentially increase every year. It’s better to lock in a fixed payment sooner rather than later. I have seen our home prices go up following a decrease in housing inventory levels over the last four years. Coupled with interest rates continually rising over the last six weeks, this will drastically change how much home you can afford in the near future.
Under the new tax law, there were no changes towards rental properties. You can still take depreciation and write off expenses, or do a Section 1031 exchange to defer capital gains. I’ve used a 1031-exchange in the sale of one rental property to purchase two rental properties instead of just one. It’s still a great way to build wealth and increase passive income.
Let us know if you are considering buying or selling and if you have any questions on the new tax laws. We have tax consultants we would be happy to refer you to. Contact us today! 480-355-8645 or [email protected]