While the GOP Tax Plan could create significant tax savings at the corporate level, homeowners could be hit the hardest. Property values are being forecasted to drop by up to 15% in states like New York, New Jersey, D.C., Illinois, and Connecticut. 

What's driving these prices down?

  1. Lowering the cap on the mortgage interest rate deduction from loans of $1 million to $750,000 and limiting the deduction to one "qualified home".
  2. Eliminating or capping the state and local tax deduction (SALT) at $10,000.
  3. Extending the primary residence requirement to five of the preceding eight years (from two of the preceding five years) and limiting the use of the tax-free exclusion to once every five years, up from the current two years.
  4. Eliminating deductions for expenses related to moving from one home to another.

How is each state effected?

To demonstrate the potential impact of this plan, we pulled data from Moody's Analytics, the National Association of Realtors, and the IRS, to analyze how the proposed tax deductions, capital gains exemptions, and current housing makeup could effect the average house price in each state.

How Tax Reform Impacts Homeowners in Each State: Data Source: NAR - THESE FIGURES ARE BASED OFF OF THE PREVIOUS MID AT $500K, WHICH HAS SINCE BEEN INCREASED TO $750K.

Who is hit the hardest?

  • Owners in higher-tax counties (the average Manhattan property tax deduction is $22,000, according to the NY Times). 
  • Owners financing second homes.
  • Owners taking on mortgages between $750,000 and $1 million.
  • Owners planning to live in their home for less than 5 years.

Moody's Analytics also broke out the numbers on a per County basis. Source: Here Are the Housing Markets That Are Going to Get Hammered by the Republican Tax Plan.

 
THESE FIGURES ARE BASED OFF OF THE PREVIOUS MID AT $500K, WHICH HAS SINCE BEEN INCREASED TO $750K.

THESE FIGURES ARE BASED OFF OF THE PREVIOUS MID AT $500K, WHICH HAS SINCE BEEN INCREASED TO $750K.

 

Who is impacted least?

  • Low- to moderate-income earners who use the standard deduction ($6,350 for singles and $12,700 for couples) as opposed to itemizing.
  • Landlords who write off business expenses. Under the proposed plan, Landlords also stand to pay over a third less in corporate taxes.

How Tax Reform Impacts Homeowners in Each State: Data Source: NAR - THESE FIGURES ARE BASED OFF OF THE PREVIOUS MID AT $500K, WHICH HAS SINCE BEEN INCREASED TO $750K.

What does this mean for me?

While the tax plan has not yet passed, it could have a significant impact upon homeowners, if it does. You should speak with your accountant regarding your particular tax situation to find out how you will be directly impacted.

With respect to property prices, each state and county will ultimately be impacted differently. These impacts will likely be reflected in the form of improperly priced listings sitting on the market longer, and average pricing to remain flat for the immediate 6 - 18 months, stabilizing near Q3 2019. 

If you have any questions regarding the pricing impact on your neighborhood and the timeline, contact us, or speak with a local real estate advisor to determine whether buying or selling makes sense for you.

Tax Hacks

  • Owners:  If you have a tax bill over $10K, consider pre-paying your 2018 property taxes (as long as you are not subject to the AMT) to take advantage of the current deduction. 
  • Buyers: If you are taking a mortgage or refinance more than $750K, do it now to grandfather in your mortgage deduction (also not a bad idea considering the Fed's plan to hike rates).

UPDATE: Since publishing this article, the GOP Tax Plan has increased the Mortgage Interest Deduction from $500K as proposed to $750K.

 

DISCLAIMER: VOR, Inc and its affiliates do not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.