Correspondent Lending

Factor tax code changes into your clients’ home purchase

A mortgage lender speaking with a client
 

Taxes play a significant role in homeownership, but your clients might not be as familiar with the ins and outs, specifically in light of recent changes to the tax code. The Tax Cut and Jobs Act, signed into law in December, may affect some homeowners with its changes regarding mortgage interest deductions. While this shouldn’t be cause for alarm, it’s important to have the right information for your clients.

1. What are the changes to the tax code?

The new federal tax code includes new limits to mortgage interest deductions. These changes will primarily impact buyers who purchase a home in the future as well as current homeowners with home equity lines of credit.

If your client purchases (or purchased) a home from December 16, 2017, through 2025, they can deduct interest on up to $750,000 in mortgage debt rather than the interest on up to $1 million in mortgage debt. Any interest paid on indebtedness exceeding the new applicable cap of $750,000—or up to $1 million for homes purchased on or before December 15, 2017—will not be deductible.1

The new law eliminates the deduction for interest related to most home equity indebtedness through 2025, even if the debt was entered into before the new law went into effect.1

2. How will this impact your clients?

Since most homes in the United States are worth less than $750,000, this lower cap will not impact the majority of your clients, especially if they are first-time homebuyers with a smaller budget.

[Callout] Under the new tax code, only 14.4 percent of homes are worth enough to be impacted by the bill. That’s about 1 in 7 homes in America.2

3. What role do local deductions play?

While the federal law applies to everyone, the cap on the deduction of state and local taxes at $10,000 will have a greater impact on individuals in states and cities with higher income and property taxes like New Jersey, California and Illinois.1 For those looking to purchase in these high-tax areas, this $10,000 might not go as far, so be sure to provide your clients the most up-to-date and specific information regarding the tax rates in their desired location.

As time goes on, state and local governments in higher-tax areas are likely to provide incentives to encourage homeownership. You should take advantage of industry forums, newsletters and other connections to keep current with these developments.

The big takeaway?

Make it simple for your clients and prospects by staying ahead of the curve and ready to answer any tax-related questions they have. In a shifting tax climate, easing your clients’ worries can help make their purchasing journey one rooted in confidence.

Stay ahead of client tax concerns

Refer to suntrust.com/LendersInsights for additional information or tips for staying up to date with tax changes.

1 “How The New Tax Law Will Impact Your Housing Costs,” January 2018, Forbes

2 “Tax Reform With $750k Cap on Mortgage Interest Deduction Would Leave 1 in 7 U.S. Homes Eligible,” December 2017, Zillow

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Clients of SunTrust should consult with their legal and tax advisors prior to entering into any financial transaction or estate plan. Because it cannot provide legal services or give legal advice, SunTrust’s services or advice relating to “estate planning” or “wealth transfer planning” are limited to (i) financial planning, multi-generational wealth planning, investment strategy, (ii) management of trust assets, investment management and trust administration, and (iii) working with the client’s legal and tax advisors in the implementation of an estate plan.

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