Ahh, summer rituals…. Time to pack up the kids and head to the mountains, lake or beach!
Summer can also mean moving time, as families relocate, upsize or downsize homes, or start that long overdue remodeling project.
I thought it would be a good time to review a few basic planning considerations, if you have a house move on the horizon.
Capital Gains Exclusion. Left basically untouched by the 2017 tax overhaul, home sellers can exclude $500,000 of gain on the sale of a primary residence if you’re married filing jointly. Single tax filers can exclude $250,000 of gain. Keep detailed records of capital improvements (new HVAC, roof replacement, wiring or plumbing overhauls) if you feel you may be getting close to that exclusion limit.
To qualify for the exclusion, you must have owned your home and used it as your main residence for at least two of the last five years.
Interest Deduction: Deductibility of interest is now limited to mortgage debt up to $750,000 for homes purchased after December 15, 2017. Deduction for most home equity debt (HELOC’s for example) has been eliminated.
Property Taxes: Deduction for state and local property taxes is now capped at $10,000. This also diminish the effectiveness of doubling up property tax payments in certain years (paying prior year taxes in January and current year taxes in December).
Financing: Interest rates have been heading higher for most of the year now, and are generally expected to continue increasing. A year ago, it was a no brainer to lock in 30 year fixed rate mortgages, as interest rates were near all time lows.
That decision is now a bit more complicated, as interest rate differences between fixed and adjustable rate mortgages become more pronounced. When evaluating your options, consider how long you reasonably expect to live in the house you are buying. If you anticipate living there for less than 5 to 7 years, it may make sense to go with a lower interest adjustable rate mortgage. You should first determine the worst case adjustable rate mortgage payment increases. Then run a break even analysis to determine at what future point in time adjustable rate mortgage payments will exceed total fixed rate mortgage payments.
Interested in discussing these issues more? Feel free to contact Morgan Stone or Kacie Swartz at firstname.lastname@example.org or 512-469-9152. Or, contact your CPA or financial planner.