President Trump’s promised update of the United States’ tax code became a reality when the Senate approved its drastic changes in late December 2017. The massive overhaul — the largest in more than 30 years — leaves many current and potential homeowners in South Carolina wondering what it means to them. Below are several key areas in which changes will be evident.
Larger Standard Deduction
With the new tax bill, the standard deductions available for singles and couples nearly doubled to $12,000 and $24,000, respectively. This is likely to encourage more taxpayers to take this deduction — rather than itemize — and result in larger refunds. With saving up for the down payment of a home being a major stumbling block, this bigger refund could provide the funds they need, paving the way for more people to become first-time homeowners. The child tax credit also doubles and includes a larger refundable portion. Some experts also predict that home prices will fall, making it even easier for homeowners to afford a home.
Capital Gains Tax
Taxpayers will still be able to exclude up to $500,000 (or $250,000 for single filers) from capital gains when they sell their primary home, as long as they’ve lived there for two of the past five years. Earlier tax reform proposals would have increased the live-in requirement to five out of the last eight years.
Property Tax
Taxpayers will no longer be able to fully deduct state and local property taxes plus income or sales taxes. Instead, the legislation allows individuals to deduct up to $10,000 in state and local income and property taxes or state and local property and sales taxes.In Greenville County, there are about 90 homeowners who paid at least $10,000 in property taxes prior to the updated tax reform. In most cases, these are homes that are worth $1 million or more.
Those households that fall into the upper-middle-class bracket will be the ones impacted the most by these changes. For example, a couple earning at least $150,000 will find themselves paying about $10,500 in taxes on their income. This amount effectively meets the $10,000 cap which means the couple cannot deduct the property taxes they pay for their cars and homes.
Mortgage Interest
According to figures from 2016, vacation homes make up about 5.7 percent of all housing units in South Carolina. Though it was proposed that the new tax bill include the elimination of the mortgage interest as it applies to second homes, the final version kept this tax break — though it has been modified.
Rather than the applicable loan amount being $1 million as it was previously, the new tax code limits it to $750,000 in loans. Of the more than 99,000 homes sold South Carolina in 2017, about 2,237 — or roughly 2.3 percent — were accompanied by a loan worth at least $500,000. In Greenville County, about 2.5 percent of the homes were sold for at least $500,000.
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