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Real Estate Rant: How Recent Tax Law Changes Effect Washington State Homeowners?

First, let me point out that I am not a tax professional. I am a small business owner, a home owner and a managing broker with a top real estate firm. So, please review your specific situation with you tax professional to make sure you are on the right track.

The McCleary Decision

Something unique to Washington State was the recent decision by the Washington State Supreme Court that forces the hand of local legislators to comply with their mandate to ensure that all schools are fully funded. The Seattle Times recently pointed out that each county in Washington is being his with some serious property tax increases and this of course will change your monthly mortgage payment. For example;

  • King County will see property taxes increase an average of 17%

  • This includes places like Carnation that will see their property taxes increase by 31%

  • Bellevue will increase by 21.6%

  • Federal Way will jump by 11.5%

  • Snohomish County will see and increase of 16%

  • Pierce County will see an increase of 11.5%

  • The range on that increase could run from 6.47% to as high as 24.52%

  • Thurston County will see and increase of about 10.54%

  • Bucoda - 2.01%

  • Lacey - 3.87%

  • Olympia - 19.28%

  • Rainier - 5.81%

  • Tenino - 2.21%

  • Tumwater - 2.44%

  • Yelm - 4.24

As you can see, it may be time to sell your King County Property and head south!

Federal Tax Issues: Highlights

In a stunning change of course for the Federal Government, the congress passed a new tax bill that is supposed to reduce the overall tax burden for the average Joe and Jill Citizen. And for most people it will be a good thing. But for those of you that missed it, here are the key provision points;

  • Tax rates reduced

  • Standard deduction was doubled

Repeal of most personal exemptions

  • Mortgage Interest deduction limited

  • Deduction for State and Local Taxes has now been limited

  • Exclusion of gain on sale of Principle Residence

So what does that mean for Homeowners?

  • No change to holding period homeowner must live in the home 2 out of past 5 years

  • No change to the exclusion amount of $500,000

  • Mortgage interest deduction limited to debt of

$750,000 for loans taken out after 12/14/17

  • Interest on home equity loans no longer deductible

  • $10,000 limit on state and local tax deductions

  • Interest deduction remains for 2nd homes but is subject to the aggregate cap of $750,000/$1 million

What about commercial real estate?

  • Retains the current Section 1031 Like Kind Exchange rules for real property

  • For carried interest requires a 3-year holding period to qualify for current-law (capital gains) treatment

  • Retains the current recovery periods for nonresidential real property (39 years), residential rental property (27.5 years) and qualified improvements (15 years)

  • Modified Rehabilitation Credit and Historic Tax Credit

How about Small Business Owners?

  • Lower marginal tax rates

  • 20% deduction from business income if taxable income is less than $157,500 (for single taxpayers) or $315,000 (for couples filing jointly)

  • Calculations get complicated when the taxpayer has non- personal service income, see your tax adviser

So should you still buy a home? Absolutely! Now is a great time to buy! Real Estate is still one of the strongest performing investments that you can make over time. Why else would politicians love property taxes so much? It's linked to that market value of your home! If you're a renter and think that you don't have to deal with this, then think about this:

  • The average rental rates went up in the Seattle area by an average of 9.7% last year. Now, the property owner is facing increased property taxes in Seattle. How do you think they are covering the cost of that increase? By making you pay it!