By Gigi Santoro,
real estate professional
A nationwide poll released in December by Realtor.com stated that 41 percent of respondents were very concerned about the passage of the new tax bill as it relates to the mortgage interest deduction cap. A California statewide poll released by Zillow showed significantly higher (60 percent) concerns from Californians. This is due in part to two factors:
First, the average home sales price in Los Angeles is considerably higher than the national average sales price. Prices per square foot in Toluca Lake, Burbank and Studio City are pushing $750 to $800. We recently closed escrow on a 1,000 square foot property in Burbank for $810,000—so those $800 plus sq. ft. prices are out there.
Because home values are higher, generally, home loan balances are higher. The new tax law caps the mortgage interest deduction at a loan balance of $750,000. There is a loophole, however, if you have a home loan with a balance in excess of $750,000 as of December 31— that loan is grandfathered in—so you can take the full interest tax deduction.
In addition, the new tax law also prohibits the deduction of HELOC interest. (Home Equity Line of Credit) for new and old loans. HELOC deductibility depends on whether it was “home equity indebtedness” or “acquisition indebtedness.”
Acquisition indebtedness — mortgage debt used to acquire, build or substantially improve the residence — will be deductible. Money used for any other purpose is home equity indebtedness, and is no longer deductible, without any grandfathering. If your existing HELOC (acquired before 2018) was used for both acquisition and indebtedness, then you will have to split it going forward.
The second factor involves the property tax deduction cap of $10,000. Property tax deductions and state tax deductions are being combined and capped at $10,000.
Many CPAs instructed their clients to pay their second property tax installment in advance of its due date, prior to the end of 2017, to be able to take the full deduction. Homeowners who impounded property taxes that wanted to pay their second installment in 2017 had to pay out of pocket instead of using their escrow accounts. Suffice it to say there was plenty of jockeying by all.
Even with these changes and reductions in deductions, the real estate market has been strong because inventory is tight. Mortgage interest has remained very consistent even with the Fed’s raising rates in December. Economists are predicting measured increases in mortgage interest rates to cap out at about 4.5-4.75 percent APR by the end of 2018.
It can be a confusing time for people to jump into the real estate market but don’t let these changes scare you. Homes are selling quickly, and lenders are loaning money with rates that are still very low. If there is a market adjustment it will also follow that the mortgage rates will go up and costs of homeownership will be the same.
Give Gigi Santoro, a Top 10 area realtor, a call and Gigi, along with her team, can help you develop a plan of action and achieve your real estate goals for 2018!
Gigi can be reached (818) 237-5687.