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While there have been a lot of disagreements and disputes regarding the proposed tax legislation (apparently soon to be adopted), there is no doubt that real estate will be one of the most important among others. affected entities and components of the US economy. The National Association of Realtors (NAR) has opposed these proposals, fearing adverse ramifications, on industry, etc. Although, no one can be sure what will happen in the future, this article will attempt to briefly discuss, consider and evaluate 5 possible/potential ramifications of this law, once enacted, on things related to real estate and housing.
1. Limiting real estate tax deductions will hurt prices, etc.: Legislation has significantly changed how state and local taxes (known as SALT), which include income tax, sales tax, and property taxes, are handled from a tax perspective. These taxes are currently federally deductible, for many reasons, including the overwhelming agreement above, not doing so is a kind of double taxation and would hurt the real estate market. When potential buyers can’t fully deduct them, but are capped at $10,000, many markets take a hit, more than others. In states like New York, New Jersey, Connecticut, Massachusetts, California, New Hampshire, and Texas, real estate and/or its combination with income taxes, homeowners will find that their income tax will likely increase. This affects the media too much, and High average- income citizens, to a disproportionate degree! Logic should indicate that when benefits are reduced, home prices will decline in value (many economists claim by 10% or more).
2. More potential homebuyers may choose to rent, rather than buy: While single-family home prices and sales may be affected, multi-family rental properties could potentially benefit. However, if this causes a significant increase in demand for income properties, it could cause higher sales prices, resulting in higher rents for tenants. Potential buyers will always consider the comparative benefits of owning versus renting, and this can make a significant difference in perspective.
3. Benefits of owning a rental property: While real estate tax deductions for your personal home are capped, they are not for income properties. Also, if more people search for rentals, the associated risks involved in buying and owning these are reduced.
4. Negative impacts on specific local economies: The New York City metropolitan area, especially Long Island, will be severely hurt when this becomes law. Newsday states, Long Island, will be hurt, far more than anywhere else, from property taxes and income taxes, and the $10,000 limit is a small thing, relative to reality.
5. High-end/priced home sales could be affected: While these homeowners have the same potential challenges as others, their potential resale values could suffer significantly due to the cap on the mortgage interest deduction. This legislation will bring with it the ability to deduct interest only on a new maximum mortgage, up to $750,000.
An evaluation of this legislation should indicate that while some middle-class people, in certain areas, might benefit slightly (estimates are about 1% lower in income taxes; this means that for someone who owes $10,000 per year in federal taxes, about $100 in savings, or $2 per week), most of the advantages go to the wealthiest, due to lower upper bracket, higher levels of estate taxes, and a significant reduction in corporate taxes. Beware, the real estate market will probably be the biggest casualty and once again politicians refuse to imagine and consider the ramifications of their politically motivated actions!