In December of 2017 the current administration passed a new tax bill, the biggest overhaul since 1986, and many changes were made that will have a direct impact on the housing market. Here is a brief look at what the new bill will mean for homeowners, buyers, and sellers. First, the standard deduction increased to $12,000 for single filers and $24,000 for joint filers. This means for many homeowners it no longer makes financial sense to itemize deductions. A report by "...Zillow found that just 14% of homes in the U.S. are worth enough, and carry high enough tax bills, that a new buyer, borrowing 80% of the purchase price, would benefit from itemizing--that is deducting mortgage interest and taxes. Under the old tax setup 44% of homes were worth enough for buyers to itemize."
The new law also changed mortgage interest deductions. "The new law caps the limit on deductible mortgage debt at $750,000 for loans taken out after Dec. 14..." Though, homeowners can still refinance on debts taken out before December 14, up to $1 million, and still deduct the interest. Mortgage interest on second homes can still be deducted but are also restricted to the $750,000 limit.
One of the biggest changes is that the new law limits property tax deductions to $10,000. The new law bundles state and local property taxes and limits the total deduction for both married and single filers. This is obviously a huge issue for those living in areas with high taxes (like New York, Connecticut, California, and others).
Many middle-class and even portions of upper-middle class homeowners won't see much of a change to their taxes or how they treat the real estate market - unless they're looking to upgrade. "An oversupply in luxury housing, plus a limited pool of buyers, has already slowed sales in that sector. And tax woes have only increased hesitation from buyers," states Mansion Global. Another speculation is that because of some of these changes in deductions, that home values across the country will drop as much as 10%.
It will take some time to get a full idea of what this new bill will actually mean, in practice. In the meantime, please feel free to contact us with questions of how this might influence your sale or purchase in 2018.