dsmWealth February 15, 2018

Jim Langin, Des Moines market president for Liberty National Bank.

Some Home Financing Less Desirable Under New Tax Law
BY STEVE DINNEN

Home buying and selling may not change, but financing them will require some adjustments, courtesy of the Tax Cuts and Jobs Act of 2017.

The Christmastime present from Congress has, importantly, trimmed the amount of interest that can be deducted to a total of $750,000 of mortgage debt ($375,000 for marrieds filing separately). The old limit was $1 million ($500,000 for marrieds filing separately).

There are small loopholes. The old deduction limit – tax people call it QRI, or qualified residence interest – still applies if the debt was incurred before Dec. 15, 2017. Ditto if a purchase contract was signed before that date but you have not yet closed the purchase. But you have to wrap things up by April 1.

And for second mortgages such as HELOCS – home equity lines of credit – the interest deduction goes completely away. Those loans made on mortgages have been popular not so much for acquisition of a home, or for remodeling, but to pay for other items, such as income taxes, college tuition and cars, and even to pay down credit card debt (not a good idea, as studies suggest that credit card debt just balloons back to its old level, only now you have put your house on the line).

These second mortgages will survive and will still be sold by financial institutions but their popularity may fade. This has prompted Jim Langin, Des Moines market president for Liberty National Bank, to offer a workaround.
"If you can’t deduct [second mortgage interest] from your tax bill, why not refinance?" he asked of rolling the first and second loans into a new, first loan. Mortgage rates remain low – in the 4 percent range for a 30-year fixed loan – and that could make a refinance cost-effective. Plus, Langin said, it still maintains the tax deductibility up to that $750,000 mark.

Greg McBride, chief financial analyst at Bankrate.com, said HELOCs also may look less desirable these days because of overall rising interest rates. HELOC rates are variable, and they’ve bumped up multiple times during the past 12 months. That trend is likely to continue.

McBride said anyone needing cash might instead turn to a personal loan. The application process is much faster, and the interest rate charged is not vastly different from what a HELOC would be. Langin said, however, that personal loans of any magnitude are pretty rare.

New Limit on Deducting State, Local Taxes
BY STEVE DINNEN

It’s like rubbing SALT into a wound.

Bad pun aside, in this case SALT stands for State and Local Income Taxes. We all pay them, and because of the new federal tax law that limits the deductibility of such taxes, higher-earning Iowans may see their federal tax bills rise.

Iowa has a relatively high marginal tax rate – 8.98 percent (fourth-highest in the nation, says the Federation of Tax Administrators). Iowans who itemize expenses on their federal tax forms can deduct state income taxes they have paid, along with local property taxes.

The rub comes because the new tax law caps the deduction for these taxes at $10,000.

Let’s add it up.

Say you own a home in Des Moines assessed at $550,000. You’ll pay an estimated $9,840 in property taxes. And say you show a taxable income of $110,000. You’ll owe Iowa income taxes of $7,995.

The total of those two is $17,835. On your federal tax return for 2017 you can deduct that entire amount. But not so for 2018 and beyond; the limit is $10,000.

The more you earn, and the higher the value of your home, the wider this gap becomes. Ouch.

GUEST OPINION: How much will I save on taxes next year?
BY SHEA MEARS, CFP®, CPA, MBA, I LEAD ADVISOR, FOSTER GROUP

The other day, I was sitting with a client, catching up and planning out the new year when the topic of taxes came up. "Will my taxes go down due to the new tax law?" he asked.

"How much time do you have?"

He looked at me with a nod and said, "All the time in the world."

Ok. Here we go.

I don’t know. It should for most, but there is a lot of change out there.

First, the tax rates are lower. If you are married and have $250,000 in taxable income, your top bracket would have been 33 percent. Under the new law, it will be 24 percent. So that’s good. All the tax brackets are reduced. The top tax rate is now 37 percent instead of 39.6 percent.

Next, the standard deductions have doubled. With an increase in the standard deduction, most folks won’t have to itemize any more. The only catch is, they took away the exemptions, both personal and dependency. A family of four that used to have a standard married filing joint deduction of $12,600 and four exemptions of $4,050 each is giving up a total of $28,800 in deductions. They will now get the standard married filing joint deduction of just $24,000.

Have I lost you yet? Good, there’s plenty more. Read more

The world’s wealthiest people are moving to Australia, according to New World Wealth in its 2018 Global Wealth Migration Review.

Oprah Winfrey’s story, from her birth in a small, poor town in Mississippi in 1954, to her becoming a billionaire and having to address rumors about a possible run for president, is extraordinary. But perhaps even more remarkable were the lives of this country’s first black millionaires, some of them born in the first half of the 19th century, decades before the Emancipation Proclamation. The journalist Shomari Wills’s new book, "Black Fortunes," tells the story of six of those millionaires, including the landowner Robert Reed Church, born into slavery, and the self-taught scientist Annie Malone, the daughter of slaves. Read more in this New York Times Q&A.

Capital Group Chairman and CEO Tim Armour explains why the return of market volatility is expected and healthy, and why we were overdue for a correction. Read more

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