• 0 Vote(s) - 0 Average
  • 1
  • 2
  • 3
  • 4
  • 5

Will expensive home prices tank because of tax reform

With a limit of 10k of real estate tax deductibility, will this hurt the value of high end homes and also the purchase of vacation homes given the 10 k. Limit
It’s state income and property tax up to $10k, so it’s worse than you state and yes, I think it will.
I think it will have some impact in California, NY and similar.  The impact might be seen in emmigration or lower sales of move-up housing.
The problem in states like California is that you can't move in-state without triggering a new property tax burden.  It's great to see price appreciation on your home, but you almost have to leave the state to unlock it.  My SALT expense exceeds the cap and I live in a very modest home.  If I were to sell, my next California home would need to be 30% below my sales price to keep my taxes at the same level, basically a lower standard of living.
The other problem with the implementation of the cap is that two-income married couples are capped at the same level as single filers.  Does that make sense?
The answer is no.  Will it have ANY impact?  Possibly on mid priced homes in high value areas, i.e. $750k - $1.5M.  I live in an area where the median home price is approaching $500k, and it is not a "high tax blue state". 

But overall, I don't think there will be a lot of tanking.
At the margin, more expensive homes become less attractive. But remember a maximum $750,000 mortgage interest deduction remains (Down from $1 million). So there’s still an incentive tax wise. But with state/local/property capped at $10,000..I would think expensive homes likely just became maybe 10% less valuable.

Offsetting this is the housing shortage in every price range..providing price support.
I guess it depends how many buyers view the former tax deduction as a motive to purchase.
Many pay high property taxes due to where they live, not because they have high end homes.  I don't see these individuals moving to a less expensive home or to a different state.  Picking up a family and finding a new job (or jobs) just because federal taxes paid might increase slightly seems to be a stretch. Retirees may move, but if children are nearby they might not.
Traditional economists view any marginal change in circumstances to create a marginal change in price.  Yet behavioral economists believe its not that simple.
Presently I see the dust up over the SALT cap to be rather interesting.  Realtors and the real estate industry complain as they always want ever increasing prices, but are concerned about affordability.  One party complains that only the rich benefit from the new tax plan, yet the SALT cap hits this group harder.  Home sellers complain, yet aren't they buyers too.  Residents of high tax states complain, yet in general aren't these the locations that worry most about growing income disparity.  I find the cross currents all so interesting.
If looking for a second home in an area known for second homes while believing home prices will drop due to the SALT cap, isn't that a good thing?

Forum Jump:

Users browsing this thread: 1 Guest(s)