A New Year Means New Tax Laws

By Jennifer Felten

Each New Year brings many changes.  January first of each year is when many new laws take effect and December 31 is when many old ones expire.  Below are just a few new tax laws that are being considered or recently passed for 2017 that relate to real property ownership.

At the Federal level, the Mortgage Insurance Deduction for middle income homeowners expired at the end of 2016.  Lenders typically charge mortgage insurance premiums to borrowers that make a down payment of less than 20 percent when they purchase their home.  The insurance premiums are used to compensate the lenders for the added risks of borrowers that submit low down payments.  The Tax Code allows borrowers with income of less than $100,000 to write-off their full insurance premiums.  Most insurance premiums are between $100 to $200 dollars per month, meaning the tax write-off can be in the thousands of dollars.  Since the most recent tax write-off law allowing for this has expired, it would take an action from Congress to reinstate.  The Republicans on Capitol Hill are working on a new Tax Bill, but have been very quiet on this particular topic.  Some officials in the mortgage insurance industry have said that conversations with committee staff have been trending positive.

Although the insurance premium tax write-off conversations have trended positive, tax deferred exchanges under Section 1031 of the current tax code is not looking as good.  House Republicans are reportedly working on a proposal that would eliminate or seriously restrict the use of a tax deferred exchange.  Under Section 1031, an owner can postpone capital gains tax on investment real estate when they exchange one property for another of “like kind”.  The capital gains tax is then deferred to when the owner sells the new property.   Some argue that the loss of the use of exchange would cost small owners thousands of dollars and restrict their access to investment opportunities.  Others argue the use of exchanges eliminate billions in dollars of tax revenue. 

In California Assembly Bill 71 which was introduced by Assembly Member Chiu on December 16, 2016, eliminates the mortgage interest deduction for a tax payer’s second residence.  A portion of the increase in tax funds is to pay for farmworker housing projects.  “In order to provide affordable housing opportunities at the earliest possible time, it is necessary for this act to take effect immediately.”

Jennifer Felten

Jennifer Felten, Esq., Relaw Ms. Felten specializes in representing both individuals and legal entities, providing representation and guidance on a variety of real estate related matters.  Relaw APC 699 Hampshire Road, Suite 105 Westlake Village, CA  91361 US Phone: (805) 265-1031 or email her at: [email protected]

For inquiries or questions about any of these events, please email [email protected].


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