On December 22, 2017 the President signed a new tax bill that affects real estate called Tax Cuts and Jobs Act. It became effective January 1, 2018 and affects income taxes for income earned in 2018. The bill, affecting taxation and real estate, in summary is as follows:
Federal Income Tax
Only $10,000 can be deducted for SALT (State and Local Taxes)
- this includes State of Louisiana income taxes (top bracket = 6%)
- Includes all property tax paid all over U.S.
- Could include $325 transaction tax (Orleans only)
- Prior to the change unlimited SALT could be deducted
Capital Gains Tax
- 20% top bracket
- Must hold property for one year
- Less than one year holding and top bracket is 37%
Pass Through Tax Deduction
- On revenue producing real property a 20% tax deduction on net income is allowed
- Realtor income from net income derived from commissions may also get a 20% tax deduction
- Exemption from Capital Gains on the sale of a home
- Must be a person or couple’s home for any 2 of last 5 years
- Worth $250,000 for singles and $500,000 for couples
- Calculated: Sale price - any money for renovation/reconstruction/addition - original purchase price = net capital gain
- 1031 Exchange
- Must identify exchange property within 45 days of sale of investment property
- Must purchase new property within 180 days of sale of investment property
- Must purchase investment property to exchange into
- Defers Capital Gains from the sale of the investment property (taxes only paid on the last sale of investment property)
State and Local Property Taxes
The Homestead Exemption is worth $75,000 with a 3 year period to seek refund for failure to exert Homestead Exemption. Check your assessment online (Google Orleans Assessor) by using the address of the property at the beginning of August each year. This will tell you what the Assessor is proposing to tax the property for the following year. Roll is open in middle of August each year when you may contest the assessment if opposed.
There are two locations in Orleans Parish: Loyola Avenue (City Hall) and Algiers Orleans Courthouse on Westbank. There is no appointment needed. Appear any day while roll is open. To contest requires proof: Act of Sale, current appraisal, construction contract, etc.
If a taxpayer’s opinion of the value placed on his property differs from the assessor’s value, the taxpayer can appeal the assessor’s decision. Assessors are required to “open” their tax books for 15 days to allow taxpayers to inspect the value placed on their property. They are also required to notify tax payers prior to the open book period, if the value of a taxpayer’s property increases by 15% or more. A taxpayer may appeal the assessor’s decision to the local Board of Review.
–In most parishes, the governing authority, police jury, or parish council acts as the Board of Review.
–A taxpayer may lose his appeal if he has not discussed his assessment with the assessor or has not provided the assessor’s office with the required information.
–The Assessor or Taxpayer may appeal the Board of Review ruling to the Louisiana Tax Commission.
–The next level of appeals is the State Court System.
–The website for each assessor will have more specific information for the appeal process in that parish. Links to the Assessor are located on the resources page.