What You Need to Know About the Disaster Relief Act and the Tax Reform Bill
The end of 2017 was a whirlwind in more ways than one. In real estate, two topics were on a lot of people’s mind - the Naples market after Irma and how many more people might move down from New York and other areas now that tax reform has passed. At a recent financial educational event we hosted at Pelican Marsh, we addressed both the Disaster Relief Act in the wake of Hurricanes Harvey, Irma, and Maria as well as the Tax Reform Act with the help of David Darwish from HBKS Wealth Advisors.
Note: None of the information here should be considered tax or financial advice. If you have specific questions about your deductions, taxes, or estate, please speak with your accountant or tax attorney.
Understanding the Disaster Relief Act of 2017
In the wake of Hurricanes Harvey, Irma, and Maria, the Disaster Relief Act of 2017 was passed to not only help those directly impacted by the storms but also those who donated to help relief efforts.
Typically, if you itemize your taxes, you can deduct a limited amount of uncompensated personal casualty loss - it’s reduced by $100 and then by 10 percent of your adjusted gross income (AGI). This Act changed that for those who suffered qualified disaster-related personal losses from the storms:
- The $100 was increased to $500 but the 10% off your AGI was waved
- You can deduct your losses even if you don’t itemize your taxes or are subject to the Alternative Minimum Tax (AMT)
Other changes not directly linked to personal losses include:
Charitable donations: The charitable deduction limitation has been suspended for hurricane relief cash contributions made between August 23 and December 31, 2017. Those contributions must have been made to a public charity using the funds for hurricane relief efforts. You must have written proof of your donation.
Qualified hurricane distributions: If your primary home is located in the disaster area and you received (or will receive) distributions from an IRA or another tax-favored retirement plan between September 3, 2017 and January 1, 2019 due to economic losses from the storm, you may qualify for relief.
- Income tax applies to the distribution but not the 10 percent penalty
- Up to $100,000 is exempt from the premature withdrawal penalty that normally applies to anyone under 59 ½.
It’s a lot to take in, so make sure to speak with an accountant when filing your taxes to know exactly what you qualify for and what you don’t.
What You Need to Know About Tax Relief
A lot of changes are coming to your taxes for 2018 - more than we can cover here but we’ll highlight a few that are important to many homeowners. Remember, these changes apply to your 2018 taxes, not 2017.
- We remain at 7 brackets, though the rates for most of the brackets went down.
- The standard deduction has changed drastically:
- Single filers change from $6,500 to $12,000 deduction
- Married/joint filers change from $13,000 to $24,000 deduction
- Head of household filers change from $9,550 to $18,000 deduction
- Deductions for state and local income and property taxes that are not connected with a trade or business are now limited to $10,000. Foreign real estate taxes do not qualify for a deduction.
The mortgage interest deduction is also changing. On existing mortgages, your deduction will stay the same. However, any new mortgage debt incurred after December 15, 2017, the mortgage interest on loans with a principal balance up to $750,000 will be deductible. The prior limitation was $1.1 million – the $1 million limitation on mortgage principal balance, and the $100,000 of home equity. Married taxpayers that file separately will be able to each deduct $375,000. There is no deduction for home equity debt.
Another point of interest for some owners is the gift and estate tax law. The limits were increased for 2018.
- The gift tax annual exclusion is now $15,000 (up from $14,000)
- The estate, gift, and generation skipping tax exemption is now $5,600,000 per person.
- A married couple can pass on up to $11,200,000 per person or $22.4 million per couple without being taxed. (It should be noted that these numbers are not exact since the IRS has yet to come out with the actual numbers based on the chained CPI inflation.)
With such big changes, make sure to seek advice from your accountant or tax attorney.
How This Impacts the Naples Market
Back to the two main topics on a lot of buyers’, sellers’, and current homeowners’ minds - the market during Irma and the possible extra influx from states with a state income tax.
What about the Naples market after Irma?
During the summer we usually have many buyers coming to town to shop for properties they would like to use during the winter months. This year, since we had Irma, we lost two months of our market time. But we definitely didn’t lose the buyers. They all came down to make their purchases, and all of them were here almost at the same time -- between October and early December. We were super busy and sold many homes.
And all the northerners who will be coming down to escape some of the state and local tax changes?
Well, they may be moving to Naples because they’re freezing but not because of the new tax law. With every new tax, we all go through a similar process. First we’re upset and get into a heated discussion with friends and family, where we threaten to move and finally, when the bill shows up, we pay it, even if we’re not happy about it. Unless taxes are debilitating, few people move because of it.
Are you ready to buy a new home in the Naples area? We can help. Let’s talk!
A big thanks to everyone from HBKS who helped the attendees at Pelican Marsh - and us - understand the new tax changes.