There are many advantages to being a home owning homeowner in the United States. These include: stability, wealth creation and the pleasure having your own home. From a tax standpoint one of the many appealing aspects of homeownership has to deal with the mortgage interest deduction blue world city. Simply put, this section of the law (sec 164) permits taxpayers to take the interest on their mortgage up to a certain amount from their gross earnings.
One of the distinctive features for an amortizing loan how the principal and interest are distributed throughout the term of the loan. The first 10 years of a 30 year mortgage loan are heavily weighed towards the interest payments and the last ten are heavily weighed towards principal payments while the remaining ten years years are an amalgamation of both. Since the majority of the initial 10 years of the mortgage's life is spent funding interest, the new homeowners will have an incentive to deduct the interest they pay from their income. This could be a significant tax savings and a compelling justification to own instead of to rent.
In the old tax code the couple who filed jointly could deduct the interest on the loan of up to $1,000,000. A single filer was allowed to deduct the interest of loans up to $500,000. The changes made into law under the Tax Cuttings and Jobs Act' cut down the deduction limit on loans that exceed $750,000 for joint filers and $375,000 in the case of single filers. If, however, you had an existing loan that was less than $1,000,000 in the case of joint filers, and under $500,000 in the case of single filers, prior to when the tax law was signed, then you will be considered grandfathered and able to continue deducting that interest. The total loan amount may be split between the homeowner's principal residence and a secondary residence so long as they do not exceed $750,000 or 3775,000 respectively. Another modification from the prior code is that interest on home equity loans up to $100,000 are no longer able to be tax-deductible. It has been removed and has been removed.
What will this mean for the residential real estate market? First, it's important to know the fact that 94% of mortgages across the US are for lower than $750,000. The areas that have loans higher than $750,000 will be restricted to a handful of states, including New York, New Jersey and California. A loan amounting to $800,000 would generally represent a one-million dollar sale price with a 80/20 loan-to-value (LTV) proportion. In some markets such as Manhattan this amount is enough to provide a bedroom in a house. The issue to be considered is whether someone who has the funds to purchase an $1,000,000 home will choose to "downgrade" to a $750,000 property due to the loss in the interest write off. Although it is possible that this happens but it's hard to imagine it being an event that is widespread.