The new republican tax plan came out today. This could have sweeping consequences for the entire real estate industry. Mark Zandi, chief economist at Moody’s Analytics, said the tax changes could initially cut prices by 10 percent in expensive markets and 3 percent to 5 percent across the U.S. What is in the tax plan that could spur a drop like this?
Homebuilders, realtors, and real estate investors are not excited about the changes to say the least. The two largest lobbying groups (homebuilders and realtors have declared war on the tax changes. These changes will impact millions of Americans and have profound economic consequences.
What is in the bill?
- Capital Gains: under the current law you can deduct up to 500k if you used the house as your primary residence for two of the past 5 years, the new law says you need to use the house 5 of the past 8 years.
- Amount of capital gains. Currently you are capped at 500k in capital gains if you are a high income earner the amount would be phased out based on your income (above 500k)
- Mortgage deduction capped: the new tax code would cap mortgage deductions at 500k, in high cost markets this could impact over 20% of all borrowers
- Limit to state and local property taxes: the new law would limit the deductions of state and local property taxes to 10k. Almost 3.7m people pay property taxes above 10k that will be impacted
Although I doubt this bill will make it through in its current form. Even the passage of some of these changes will have a profound change on the real estate arena. Below are two articles for additional reading. If you are anyway invested in real estate these changes will impact you.
Resources:
- https://www.usatoday.com/story/news/politics/2017/11/02/tax-plan-caps-property-deduction-10-000-puts-new-limit-mortgage-deduction/823088001/
- https://www.bloomberg.com/news/articles/2017-11-02/pricey-home-markets-from-greenwich-to-l-a-seen-hit-by-tax-plan
Written by Glen Weinberg, COO/ VP Fairview Commercial Lending. Glen has been published as an expert in hard money lending, real estate valuation, financing, and various other real estate topics in the Colorado Real Estate Journal, the CO Biz Magazine, The Denver Post, The Scotsman mortgage broker guide, Mortgage Professional America and various other national publications.
Fairview is a hard money lender specializing in private money loans / non-bank real estate loans in Georgia, Colorado, Illinois, and Florida. They are recognized in the industry as the leader in hard money lending with no upfront fees or any other games. Learn more about Hard Money Lending through our free Hard Money Guide. To get started on a loan all they need is their simple one page application (no upfront fees or other games).