There are many reasons to buy a home in California, but it may not be so wise to do so with the anticipation of benefiting from potential tax deductions due to tax law changes. While a home can still be a wise investment, certain tax breaks no longer exist, and others are not as significant. For instance, standard deductions for individuals, heads of household and people married but filing jointly have increased. This reduces possible savings from itemizing when going over the standard deduction by buying a home since this amount is now higher.
Recent buyers of any residential property may find it more difficult to sell if their home is near the new home mortgage interest deduction cap of $750,000, which is down from the previous limit of $1 million plus $100,000 for equity debt. Re-financing deductions not related to home improvements have also been eliminated, making it less advantageous for homeowners to borrow against their home.
State and local tax deductions remain the same although the collective amount that can be claimed on all taxes is now lower. This could make home ownership less appealing for buyers in high property tax states such as California. Also, unless a federal disaster is involved, homeowners sustaining storm damage can no longer claim personal casualty losses. Since the deduction for premiums for mortgage insurance hasn’t been renewed, some buyers may not be able to afford a home purchase in tougher markets.
With mortgage forgiveness exclusions not yet renewed either, there’s more incentive for buyers considering a residential real estate purchase to work with a real estate attorney. A lawyer may be able to negotiate terms with sellers in ways that are more beneficial for buyers or make recommendations on how to minimize tax burdens associated with home purchases.