By As of January 2025, several tax law changes at both federal and state levels in the United States are poised to impact homeowners. Staying informed about these developments is crucial for effective financial planning.
Potential Expiration of the Tax Cuts and Jobs Act (TCJA) Provisions
The Tax Cuts and Jobs Act of 2017 introduced various tax reductions, including lower income tax rates and an increased standard deduction. These provisions are set to expire at the end of 2025, which could result in higher income taxes for many Americans if Congress does not act to extend them. High-income households and residents in high-tax states may experience the most significant increases.
Debate Over State and Local Tax (SALT) Deduction Cap
The TCJA also imposed a $10,000 cap on the SALT deduction, affecting homeowners in states with high property and income taxes. Discussions are ongoing about modifying or repealing this cap. Notably, former President Trump has expressed support for removing the cap, which could benefit taxpayers in states like New York, New Jersey, and California.
State-Level Property Tax Reforms
Several states have enacted property tax changes effective in 2025:
- Florida: Amendment 5 adjusts one of the two $25,000 homestead exemptions for annual inflation starting in 2025, potentially increasing the exemption amount over time.
- Georgia: Amendment 1 limits the cap assessment growth for homestead properties, aiming to provide more predictable property tax bills for homeowners.
- Minnesota: The maximum homestead property exclusion increases by $7,600 to $38,000 for properties valued at $95,000 or less, reducing taxable property value for eligible homeowners.
Rental Property Taxation Changes
Changes affecting rental properties include:
- Arizona: Effective January 1, 2025, the state eliminates taxes on long-term residential rentals (leases of 30 days or more), potentially reducing costs for landlords and tenants.
- Delaware: Starting January 1, 2025, a 4.5% tax is imposed on short-term rentals (31 consecutive nights or less), in addition to any local taxes. Counties may levy an additional rental tax of up to 3%.
Climate-Related Property Tax Implications
Increasing climate-related disasters have financial implications for homeowners:
- Property Reassessments: After natural disasters, properties may be reassessed, potentially lowering their values and reducing taxes temporarily. However, municipalities might increase tax rates elsewhere to compensate for revenue losses.
- Tax Relief Applications: In some states, homeowners can apply for reassessment and tax relief if their properties suffer significant damage.
Proposed Federal Tax Changes
The 2025 Federal Budget proposes several tax changes that could affect homeowners:
- Limiting 1031 Exchanges: A proposal aims to cap the deferral of gains from real property exchanges to $500,000 per taxpayer ($1 million for married couples) per year. Gains above these thresholds would be taxable in the year of transfer.
- Taxation of Appreciated Assets at Transfer: Another proposal would require donors or deceased owners to realize capital gains at the time of transferring appreciated assets, with certain exclusions.
These proposals are subject to legislative approval and may evolve during the legislative process.
Homeowners should monitor these developments and consult with tax professionals to understand how these changes may affect their financial situations.