What the New Tax Laws Mean for Real Estate
There are many changes currently being put into place by the the GOP tax bill. Some of these changes can be good for real estate and some are not. Overall, people are going to be able to start saving more money. Renters and people who don’t own homes will start making money and this will spur the market. The main reason why people don’t buy homes is not necessarily because of income, it’s that people don’t have enough money to pay for the down payment of the house. This tax bill may enable more people to save up that money and buy new homes.
Here are a couple of changes that will affect current homeowners.
Mortgage Interest Deduction
It used to be that you can deduct up to one million dollars from your income. Like if you made $100,000 a year and you paid $50,000 worth of interest, you can deduct it and you made $85,000 that year. Now that interest deduction is capped at $750,000, if you buy a house for $1.3m and you have a $1m mortgage, you can only deduct up to $750,000 worth of interest on that mortgage. This means that prices on the higher end homes may drop a little.
State, Local, and Property Tax Deductions
It used to be that you were able to deduct state, local, and property taxes from your income. Now you can only deduct up to $10,000 in all of those taxes. This means that in high property tax areas, you can only deduct that and nothing else. So, that might bring down housing prices. This wont affect the Brooklyn market as much as taxes are generally under 10k or slightly more.
Not only will this new bill possibly affect homeowners, but it will also affect the market in general. Here are some deductions that can benefit and boost the real estate market overall.
- Standard deduction: tax fair used to be that married people can deduct $12,000 from your income. Now that doubled to $24,000.
- Child tax credit: a credit on your taxes doubled. If you were able to get a credit of $1,000 per child, now you can get $2,000. Even if you don't have any income.
- Interest Deduction capped at $750,000 down from $1,000,000.
- You cannot deduct mortgage interest on home equities which means that less people moving from Brooklyn will be able to take out that down payment. They can always refinance but then they will lose their mortgage interest deduction or cap it at $750,000.
- State, local, and property taxes maxed at $10K.
- Corporations now pay 21% tax as opposed to 35%.
- 529 Savings plan now allows you to pay tuition for private schools tax free up to $10,000.
- Child credits now go up from $1,000 to $2,000. It is a credit, not a deduction.
- Tax rates are lowered slightly.
- Standard deduction is nearly doubled from $6,350 to $12,000. This is actually bad for the housing market as now more people will be taking the standard deduction and opting not to itemize deductions and claim a mortgage interest credit. That being said, it is going to be harder to push the rent vs own benefits.
If you need help with any current real estate questions or want to discuss your options in finding a new home, contact Karen Behfar at email@example.com.
Experienced Real Estate Broker with a demonstrated history of working in the Real Estate industry. Skilled in Selling, Negotiation, Customer Service, Sales, and Working with Investors. Strong Real Estate professional. Bachelors of Psychology and a Master’s Degree focused in Special Education and Teaching from Touro College helps her navigate the intricate world of Real Estate in the Brooklyn Market.