The taxes are a-changin'!
As one of the two guaranteed things in life, it's important to stay up to date on what's happening in the tax world. The only problem is, they can be complicated, they're always changing, and if you don't file correctly you could end up owing money to Uncle Sam – especially if you bought a home in Colorado in 2018.
That's because the new federal tax laws, effective January 1, 2018, are some of the largest changes we've seen in the past three decades and they include changes to how much you can deduct when you buy a home. According to the new law, you're only allowed to deduct a maximum of $10,000 for the state, property, and sales tax of the purchase. In the past, you were able to deduct the whole thing, and with home prices as high as they are here, that will definitely affect your numbers.
Other changes include restricting mortgage interest deductions to those who itemize and capping the mortgage interest deduction to mortgages of $750,000. If you're one of the 30 percent of individual taxpayers who itemize, and you want to buy a home, you might want to consider purchasing a home that's less than $750,000 so that you can still deduct the interest. Previously, the cap was set at $1 million.
Lastly, you're no longer allowed to deduct mortgage interest on a second property. Again, you used to be able to so long as the combined value was less than $1 million. So that ski condo you've been eyeing might have to wait, even though owning property in Denver and in the mountains is likely to cost more than $1 million.
In the end, it's always best to work closely with your tax professional and your wealth manager/financial advisor to formulate the plan that's best for you and your goals.
What are your thoughts? Do you think the new tax law is going to hurt the value of homes $750k and beyond? If so, let us know in the comments below!