While there has been a significant amount of disagreement, and dispute, regarding the proposed (apparently, soon, to be adopted), tax legislation, there can be little doubt, real estate, will be, one of most, impacted entities, and components, of the American economy. The National Association of Realtors (NAR) has opposed these proposals, because of fears of adverse ramifications, on the industry, etc. Although, no one can be certain, of what will occur, 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. Capping real estate tax deductions will hurt pricing, etc: The legislation has significantly changed, how state and local taxes (referred to as SALT), which includes income tax, sales tax, and real estate taxes, are handled, from a tax perspective. Presently, these taxes are deductible on one’s federal return, for many reasons, including, the previous, overwhelming agreement, not doing so, is a sort of double taxation, as well as, would hurt the housing market. When potential buyers can’t fully deduct these, but, rather, they are capped at $10,000, many markets are affected, more than others. In states, such as New York, New Jersey, Connecticut, Massachusetts, California, New Hampshire and Texas, either the real estate, and/ or combination of these with income taxes, homeowners will discover, their income tax, will probably increase. This overly affects middle, and upper – middle – income citizens, to a disproportionate degree! Logic should indicate, when the benefits are reduced, home prices will decrease in value (many economists state by 10% or more).
2. More potential home buyers might opt to rent, rather than buy: While single family home prices, and sales, might suffer, multi – family, rental properties, might potentially benefit. However, if this causes a significant increase in demand for income properties, it could cause higher selling prices, which would result in higher rents, for tenants. Potential buyers will always consider the comparative benefits of ownership, versus renting, and this may, make a significant difference in perspective.
3. Owning rental property benefits: While real estate tax deductions for your personal home are being capped, they are not, for income properties. In addition, if more people seek rentals, it reduces the associated risks, involved, in purchasing and owning, these.
4. Negative impacts on specific local economies: The greater, New York City, area, especially Long Island, will be severely harmed, when this becomes law. Newsday states, Long Island, will be injured, far more, than anywhere else, because of the real estate taxes, and income taxes, and, the $10,000 cap, is somewhat insignificant, in relation, to the reality!
5. Upper – level/ priced home sales could suffer: While these homeowners have the same potential challenges, as others, their potential resale values, could significantly suffer, because of the cap, on deducting mortgage interest. This legislation will bring with it, the ability to deduct, only the interest on a maximum, new mortgage, up to $750,000.
An evaluation of this legislation, should indicate, while some middle – class people, in certain areas, might slightly benefit (estimates are, approximately 1% lower, income taxes – this means, for someone owing $10,000 per year, in federal taxes, about $100 savings, or $2 per week), most of the advantages, go to the wealthiest individuals, because of the lowering of the upper bracket, higher estate tax levels, and significant reduction in corporate taxes. Beware, the housing market will probably be the biggest victim, and, once again, the politicians, refuse to envision, and consider, ramifications of their politically motivated, actions!