(Updated on 12/22/17 to reflect that President Trump signed the new tax bill into law)
On December 22, 2017, President Trump signed into law a major $1.5 trillion tax plan that Congress had earlier passed, the first re-writing of our tax laws in over 30 years. The big question now is, who wins and who loses? The answer may not be readily available for some years, at least until we see if the projected increase in jobs and economic activity promised by the boosters of this new law actually materializes. In the meantime, what’s in there that affects condo and co-op owners in New York City and its suburbs?
One major goal of the new law is to simplify the tax code and tax filings by encouraging taxpayers to take a standard deduction rather than to itemize deductions. To achieve this, the legislation nearly doubles the standard deduction from $6,500/$13,000 for individuals and couples to $12,000/$24,000 respectively. This provision can be viewed as an attempt to provide tax relief to salaried workers who live in states or regions that have generally lower taxes overall, as itemizing clearly favors taxpayers in higher tax states and regions, because they can deduct state and local income taxes. Additionally, the tax code has been used for decades as a boon to home ownership, as it provides deductions for interest charges derived from mortgage payments and for real estate taxes—the main deductions taken by homeowners nationally.
The major changes affecting homeowners in our region—and that includes condominium and co-op owners—relate to the deductibility of state and local income taxes and local property taxes, and deductions for mortgage interest.
Under previous law, individuals who itemize may deduct all state and local income taxes and real estate taxes. With this new law, there will be a $10,000 cap on all state and local taxes, including both income and real estate taxes.