As you might expect, the National Association of Realtors was heavily involved in lobbying to preserve incentives and benefits for homeownership during the recent tax reform process. A recent analysis of the effects of the new bill show benefits for renters, still preserving most home ownership incentives.
The doubling of the standard deduction to $12,000 for individual taxpayers and $24,000 for joint returns will be an advantage to renters who could not previously itemize deductions. By doubling the standard deduction, the value of mortgage interest and property tax deductions is reduced, putting renters on a similar playing field with the average homeowner. Under prior law, an incentive to owning a home was the ability to deduct mortgage interest and property taxes as itemized deductions—thereby reducing taxable income, while the standard deduction was lower. It's estimated that because of this change in the standard deduction, there will be little tax difference between renting and owning for more than 90 percent of taxpayers.
According to the NAR article, mortgage interest and property tax deductions will continue with some changes. The mortgage interest deduction will have a debt limitation of $750,000 for new loans. Interest on second homes will also remain deductible, but subject to the same $750,000 debt limits. State and local income tax deductions are limited to $10,000 for both single and married filers.
Probably the biggest incentive of home ownership—the exclusion of gain on the sale of a principal residence—remains unchanged. According to NAR, single taxpayers will still be able to exclude $250,000 of gain, while married taxpayers will be able to exclude $500,000 as long as they lived in the home for two of the past five years.
NAR offers further analysis of how the new tax law will affect taxpayers as compared to old law, and generally, taxes will be reduced. The limitations on the deductibility of state and local taxes to $10,000 could be an incentive for retirees and those on fixed incomes to locate to lower tax states.