tax Archives | Julie Wilson

New Real Estate Excise Tax (REET) Rate (eff. 1/1/20)

Now that Washington State Senate Bill 5998 has been signed into law, our local real estate excise tax—the tax paid when you sell a property—will be getting a facelift in 2020. The flat rate of the past will make way for a new tiered system which gives owners a tax cut on the first $500,000 of home value, keeps the current tax rate on the next $1 million of value, and then increases it sharply after $1.5 million.

The good news is that taxes will go down for the vast majority (~93%) of sellers in King County. Sellers of luxury homes that fetch more than $1.56m, however, will be paying more—much, much more in the case of multi-million dollar home sales.

Wondering how the changes might impact your bottom line when it comes time to sell? Scroll down or check out our quick reference worksheet…

DETAILS & BACKGROUND

The previous flat state REET tax of 1.28% (1.78% after the 0.5% local portion is added) will be replaced on January 1, 2020, by the following rates (total REET after King County local portion is shown in parenthesis):

1.1% (1.6%) – Portion of selling price less than or equal to $500,000

1.28% (1.78%) – Portion of selling price greater than $500,000 and equal to or less than $1.5 million

2.75% (3.25%) – Portion of selling price greater than $1.5 million and equal to or less than $3 million

3.0% (3.5%) – Portion of selling price greater than $3 million

These thresholds may be adjusted again in 2022 and every four years after that using a formula for calculating value trends.

The current state real estate excise tax rate has been the same since July 1, 1989 while the local portion of the rate has been managed by each jurisdiction individually. You can find the full details in this Real Estate Excise Tax historical rates chart provided by the Department of Revenue.

The state provides a summary of the history and use of the real estate excise tax in Washington State detailing changes over the years. Currently, the bulk of the estate tax (92.3%) goes to the General Fund. Beginning January 1, 2020, and ending June 30, 2023, revenue distributions must be as follows: 1.7 percent must be deposited in the Public Works Assistance Account; 1.4 percent must be deposited in the City-County Assistance Account; 79.4 percent must be deposited in the general fund; and the remaining amount must be deposited in the Education Legacy Trust Account. Beginning July 1, 2023, and thereafter, revenue distributions to the Public Works Assistance Account increases to 5.2 percent. You can find the full law and definitions in Chapter 458-61A WAC (Washington Administrative Code).

SO WHAT’S THE BOTTOM LINE?

If you sell for $1,561,258 or less in King County, you will pay the same or less (up $900 less) in REET after 1/1/20. This is great news for most property owners in King County and across the state. Because the rate states the same on the portion of the selling price greater than $500,000 and equal to or less than $1.5 million as it currently is, all the savings comes in the portion below $500,000. This begins to whittle away as you creep above $1.5 million and into the higher tax rate of 2.75% (3.25%).

If you sell for more than that amount, you’ll be paying more–often much more. You can see from the quick reference chart below that the seller of a $2.5 million property will pay an additional $13,800, while a $5 million sale will cost an extra $55,550 and a $10 million sale a whopping $141,550 more.

Everyone will have a different take on the new tax rate, but if you have a valuable property and contributing more to the state’s coffers isn’t part of your charitable giving strategy, selling in 2019 might offer significant savings. On the other hand, selling in 2020 and beyond funds education and public works at greater levels than ever before, and that benefits everyone.

EXCISE TAX QUICK REFERENCE WORKSHEET

MERCER ISLAND

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Posted on June 4, 2019 at 4:46 pm
Windermere MI | Category: Uncategorized | Tagged 2020, change, excise, new, property, real estate, tax, washington state

Planning ahead: how tax reform will impact your home deductions next year

While you may still be busy filing your 2017 taxes, it’s important to look ahead and be aware of how the new 2018 tax reform laws will affect next year’s return–especially if you’re a homeowner. Those who itemize will need to note some big changes in what they can and cannot deduct. Many will instead choose to use the new higher standard deduction ($12,000 for single individuals and $24,000 for joint returns) rather than itemizing their deductions.

What can you do now? Check in with your accountant for advice specific to your situation and filing status. Also, you’ll probably want to update your withholding amount to reflect the new deduction amounts. In the meantime, here is the skinny on 5 changes that may affect you if you own a home…

1. Mortgage Interest Deduction

The deduction that allows homeowners to reduce their taxable income by the amount of mortgage interest they pay has been scaled back.

For loans taken out after 12/14/17, you can now only deduct mortgage interest paid on the first $750,000 of combined debt for primary and secondary residences (or $375,000 if married filing separately).
Current loans of up to $1 million are grandfathered and are not subject to the new $750,000 cap if they were taken out before 12/15/17 (or if you entered into your purchase contract prior to 12/15/17 and the sale closed by 1/1/18).
You can continue to deduct the interest on grandfathered loans even if you refinance.

2. Home Equity Loan Deduction

Under the former tax law, you were able to deduct the interest on up to $100,000 of home equity debt even if the proceeds were used for something other than buying or improving the home (for example, an equity line of credit used to pay college tuition). This is now no longer the case.

New 2018 law eliminates the deduction for interest on home equity debt unless it’s used to buy, build, or substantially improve the home that secures the loan.
Loans to buy second homes do not qualify for the interest deduction if they’re taken out against the equity of your primary home.

3. Deduction for Property & Sales Taxes

Tax relief for homeowners who pay property taxes has also been limited.

Itemized deductions for property taxes, sales taxes, state income taxes, and any other local taxes will now be limited to a combined total of $10,000.
The combined limit drops to $5,000 if married filing separately.

4. Deduction for Moving Expenses

While you used to be able to deduct some moving expenses when you moved for a new job, this deduction has been repealed for everyone except active-duty members of the armed forces.

5. Deduction for Casualty Losses

Under former law, substantial losses to your home and personal property through things like fires and robberies could be deducted from your taxable income. Under the new law, this deduction is eliminated for everything except presidential-declared natural disasters.

Want to know more?

The above article is presented for informational purposes only and is not intended to replace professional tax advice from your accountant.

Sources:
“The Tax Cuts and Jobs Act – What it Means for Homeowners and Real Estate Professionals,” by the National Association of Realtors
“5 Homeownership Changes Coming Under New Tax Law” by NerdWallet
“Tax Reform” by the Internal Revenue Service

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Posted on March 9, 2018 at 4:46 pm
Windermere MI | Category: Uncategorized | Tagged 2018, casualty loss, changes, deductions, equity, expenses, interest, mortgage, property, reform, tax