Historically low (Again!) mortgage rates aren’t the only thing making headlines in the world of real estate right now. President Trump’s tax plan has been released and so far, experts say it may not be a positive thing for buyers, sellers, homeowners and South Lake Tahoe Realtors. While his administration is boasting the tax plan as one of history’s biggest tax cuts, NAR (The National Association of Realtors) made a statement this week saying this first draft could harm the housing market.
Why is this new plan getting back lash? American has made a point of helping lower and middle class families make this big financial investment with tax incentives specifically for their benefit. This proposed tax plan has the potential of resulting in decreasing home values if tax reforms or incentives that these buyers have depended on go away. The federal income tax already burdens 80%-90% of homeowners, and we could see that number rise if this new plan goes through. This results in decreased value of mortgage interest deduction which provides homeowners help with the buying cost and can deter buyers from purchasing. Add in the fact that local and state tax deduction are also threatened with getting the ax and some of the USA’s most expensive states could hurt homeowners by keeping them from deducting property tax payments from federal taxes, costing people a lot of money.
While mortgage interest deductions are safe, they could be much less valuable if the standard deduction is doubled. By marginalizing the deduction, housing demand is reduced which results in lower home values. Some homeowners may not be able to write off their state, local income and real estate/property taxes. Which saves people a LOT of money. The North Eastern & West Coast residents stand to lose the most due to the highest tax rates in the nation with this one.
Also on the chopping block? Home office deductions, which impacts consultants and freelancers by doing away with the ability to write off insurances, utilities and more. While these deductions won’t completely disappear, what you can deduct will be based on the workspace size in comparison to the rest of the home. Most of the people that this will impact are middle class citizens who have a small business or start up company.
Renters will also feel the effect of this tax plan as how much investors put into commercial real estate properties (like apartment buildings) could change due to things like 1031 exchanges being impacted. Investors have the ability to use the capital gains taxes from investment property sales as money to reinvest in other property purchases. If enforced, these types of exchanges could be less valuable which means investors will take their money elsewhere. This is not something we want to see happen as these investors keep the market moving and money going to local economies.
Of course, when it comes to politics, there are always two sides that will be argued so we can only wait to see what happens, however the good news is that housing demand is so strong right now that if put into place, there will not be an immediate impact. Although, middle class buyers can expect decreased affordability which is already a major issue in several states. That and low inventory. Sigh. Stay tuned as we are keeping a close eye on this one!
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