How the New Tax Bill Will Affect Mortgages & the Real Estate Market
Both the Republican-controlled Senate and the House have new tax bills proposed for 2018. What is my view of the reverberation of the tax bill on the housing market?
Let’s review the overall changes to taxes surrounding real estate. The loss of state and city tax deductions from federal taxes, combined with the elimination (or reduction) of real estate tax deductions and the reduction/limitation of the deduction for mortgage interest, will add up to a downturn in real estate value. How great a loss is unknown. Because the new bills allow mortgage interest deductions for primary residences only, eliminate deductions for home equity loans, and include new capital gains requirements that only allow for the capital gains benefit if you have owned your home for a long period of time, the benefits of owning real estate other than your primary residence lessen. Investment properties owned in an entity will still be able to +take advantage of all deductions.
Where do we end up? It appears we will become a country of renters as the benefits of owning real estate diminish. Second-home markets, such as my own in Sag Harbor, are likely to see a drop in value as the benefits of ownership are reduced. Home ownership is already at an all- time low of 63.7 percent. How low will it go? And is anyone weighing the ramifications of such a major change? Dropping home values is just the tip of the iceberg. Lower revenues mean a reduction in education funding and local governments. Even worse, it could cause people to flee to lower-tax states, further reducing revenue to New York and other states, as well as reducing real estate values as more inventory appears in a shrinking market.
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