Importance of Tax Planning When Buying a Home in Light of Tax Reform

While many housing experts feel tax reform will shake up the real estate market, it's not likely to turn the American dream of home ownership to dust. The importance of tax planning when buying a home can't be dismissed in light of tax reform. People buying a home still reap many homeownership benefits. One major difference with tax reform is that people who itemized their taxes are less likely to itemize and deduct their property taxes. According to a recent article by, the tax reform bill makes the interest deduction still available for people who have mortgage debt of up to a half-million dollars. People buying starter homes will notice a minimal impact since the average price of homes in the U.S. is about $200,000. Only about 3 percent of homeowners have mortgages of more than half a million. At the same time, it's still important to boost your credit score in order to qualify for a low mortgage rate with favorable terms.

Putting a squeeze on new construction

Experts believe the tax reform will affect the high-end market with builders having less incentive to build luxury homes. Stocks in some home builders fell after the news of the tax reform. Instead of focusing on buying a new construction home, aspiring homeowners can consider the inventory of newer homes just one to five years old.

Favoring landlords

While most homeowners would not itemize their taxes due to tax reform changes, landlords and real estate investors will continue to deduct mortgage interest and property taxes from their business profits. In other words, it's still a good time to own a rental property. When hunting for investment, check the HOA (homeowner association) policies to make sure you can rent out your investment property without any time delays.

Other changes expected with tax reform include a doubling of the standard deduction. People who continue to itemize taxes can only deduct property taxes up to $10,000 if they choose to itemize instead of taking the more generous standard deduction. The tax reform does not negatively impact most homebuyers because homeowners continue to build wealth beyond that achieved by renters. Before making any major real estate decisions, consult with a certified public accountant. For more information on tax planning and tax reform, please contact us.

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