The new Tax Plan in Real Estate there are winners

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The New Tax Plan: When It Comes To Real Estate, there are still  winners  lets see  Who Wins  And Who may Lose

 

We have all heard a lot about the new tax plan. Depending on your individual financial situation, you may have a positive or negative take on the tax bill. But how does it impact real estate? That also depends on a few things, like where you are buying a house, how much money you have, and what you intend to do with it.

The new tax plan has had a negative response to the American dream by some real estate professionals & groups. But are these fears surrounding the new, lower cap on mortgage interest deduction – and the incentive for taxpayers not to use it – overblown? Or are there  repercussions to come? That all depends….

Here are some winners and losers as it relates to real estate.

Everyone:   Winners:  amount is relative to ones situation

The mortgage deduction has been among the most talked-up portion of the tax bill, especially in relation to the standard deduction. The new tax code doubles this deduction; new amounts are $12,000 for individual filers and $24,000 for married couples who file jointly. On the surface, this seems like great news. However, the elimination of other deductions that formerly incentivized itemization may mean more tax filers go the standard route. So, is that a bad thing?

According to the Pew Charitable Trusts, most taxpayers – as many as two-thirds – don’t itemize their tax bills anyway, which means they aren’t claiming the deductions that are available to them.

On a scale of 1 to 10 on if interest deductibility is going to have a big impact on housing it’s a 5. and it’s not clear that it will hurt housing. But it is clear that there will be some adjustments as there had been in the last 25 years when changes had occurred in the Real Estate Market.

The new limit on property tax deductions makes the “to itemize or not to itemize” conversation even more complex so your accountant should be contacted.

Can you still deduct the state and local taxes? You will be able to write off the cost of state and local taxes, up to $10,000. And they must choose from among sales, income and property taxes for the deduction, instead of being able to deduct all local taxes.

The state and local tax deduction is important because it is frequently one of homeowners’ largest deductions outside mortgage interest. As it stands today, the mortgage interest tax deduction primarily benefits people who incur substantial mortgage interest on a residence in a state or municipality with relatively high income and property taxes like New Jersey. That’s because the mortgage interest tax deduction only matters if your total deductions exceed the standard deduction.

Luxury Buyers: Could see a hit

The mortgage interest deduction is now at a $750,000 cap – it was previously $1 million on the mortgage interest deduction means luxury buyers could see a pinch.

Under the new tax plan, the deduction would be limited to $750,000 of indebtedness starting with the 2018 tax year. However those who have mortgages issued before the Dec. 15, 2017, cutoff date would be grandfathered in, and will still be able to deduct interest on up to $1 million of mortgage-related indebtedness.

First-time buyers: Mostly unaffected depending on price point

Those who are now buying a new home or who recently have, may not feel any pain if their home price is under $750,000 – the cap for the home mortgage interest deduction on the new tax bill.

The vast majority of new homeowners won’t be affected. The 2017 median sale price in Westfield is $747,000, Scotch Plains $525,000, Fanwood $437,000, Mountainside $625,000, Cranford $460,000, Garwood $395,000, Summit $930,000. Additionally existing homeowners will be grandfathered into the previous deduction limit. So the new cut is expected to effect new mortgages over $750,000 and awarded to homeowners  living in the most expensive parts of the country.

Home equity loan lovers – Losers unless you use the equity for your home

The tax bill will require greater scrutiny from homeowners looking to use their home equity. Gone is the ability to use it however you want and get a write off – currently, you can deduct the interest on as much as $100,000. Use your home equity line of credit (HELOC) to finance a car or a vacation under the new plan, and you will no longer be able to deduct the interest.

Real estate investors: Winners

Some of the real winners of the new tax plan are investors, who are already able to write off all the expenses of owning and running a rental because the properties are considered a business. The interest on those mortgages, along with repair, maintenance and management costs are deducted from the income the property produces. Investors are only taxed on that income, so by reducing it, the investment acts as a tax shelter. This is unchanged by the new bill.

The new tax plan could, however, drive increased demand for single-family rentals because it will reduce the tax benefits of homeownership. The proposal could eliminate the deduction for property taxes as well as lower the limit on the mortgage interest deduction. That would hit all homeowners who itemize and especially those owners of higher-cost properties in expensive locations. That, in turn, would benefit landlords.

There will also be a benefit to investors of real-estate investment trusts, who will have a smaller tax bill on dividends. The tax plan features a deduction for pass-through businesses – income derived from commercial activities that their owners or shareholders pay on their personal income taxes. That deduction includes the income that flows to REIT investors through dividends – mainly from rent or mortgage interest – but not the capital gains secured when properties are sold.

 

Having reviewed all I still think The AMERICAN DREAM is alive and well

The simple truth is, the American dream of owning your own home is not only alive and Well but the opportunities to make this dream a reality have never been better. Interest rates are still low.  But beyond the financial aspects of buying a home are benefits that can’t be measured or placed on a graph. You simply can’t quantify the pride someone feels from owning a home. Imagine the freedom to paint a room any color you like, or being able to hang a tire swing in the backyard, or getting to hang a picture frame on any wall you like, and not worry about the holes it may leave behind.

But there’s more. Research from government entities, academia and nonprofit groups have discovered societal benefits of owning a home include more stable communities, greater academic achievement, higher property values, and lower crime rates. Don’t miss the opportunity the Spring Market in 2018 will be great whether buying selling investing. 

 

Susan Massa Broker Associate CRS SRES ABR  Keller Williams Realty  908-400-0778

 

Are you considering selling your home or Looking to Buy a home? With over 25 years of Experience with Multiple Realtor Professional   Designations and Certification I am your Realtor.  Call me to arrange MY FREE   Home Evaluation  Report  and The Market Conditions Report. My expertise and marketing  ensures  you  are in Good Hands to sell your home. And or Buy a Home

 

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For more information on these or other real estate matters, contact Susan Massa Broker CRS SRES ABR at 908-400-0778, email susan@susanmassa.com or susanmassa2@gmail.com   www.NJHomeShowcase.com