Exploring the New Tax Laws: The Standard Deduction Change
The 2017 tax reform law that will take affect for 2018 filings, contained a change to the standard deduction.
What is a standard deduction?
Typically a standard deduction reduces the amount of income you pay taxes on according to the IRS. Itemized deductions, the other option also reduces the amount of income you pay taxes on, but it instead is made up of "eligible expenses" that reduce your income, as opposed to an IRS determined pre-set amount used for the standard deduction. It is important to note that when your taxes are filed you can only take one type - the standard or the itemized, not both.
What's different about the Standard Deduction?
With the 2017 tax reform law the Standard Deduction doubled, $24,000 for Married Taxpayers filing jointly & $12,000 for Single Taxpayers.
This might be a concern for some current and future home buyers because with past law many used the itemized deduction to further offset the amount of taxes paid on income.
It is important to note that the new parameters may work for some people. Every circumstance is different, as are the finances of each individual, so there may be some negatives for some that could work better for others. A consultation with your accountant as you are making your decision to purchase could help you make that determination.
I believe there are still some key benefits in owning a home. The focus for home buyers and home owners will most likely turn to learning more about some of those benefits like:
Building equity monthly - not an option as a renter
Creating cash flow with residential real estate investments - more on that later
Appreciation and future value of the property
Capital Gains - a tax exemption that may be available with the sale of a property that has been occupied by the owner for 2 out of the last 5 years
*PLEASE NOTE: THIS POST AND OVERVIEW IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSTITUTE LEGAL, TAX, OR FINANCIAL ADVICE. PLEASE CONSULT WITH A QUALIFIED TAX ADVISOR FOR SPECIFIC ADVICE PERTAINING TO YOUR SITUATION.