There is a lot of uncertainty in the air as we begin this new year. The recent changes to the Tax Code have generated rumors that homes prices will be significantly devalued during 2018. These rumors are purposefully provocative and not based in proper context. There will be movement, but more like ripples than waves. Historically, real estate in NYC responds more to job growth, the stock market, bonuses, and corporate profits than to tax changes.... and all indicators for those indexes are excellent for 2018.
Here are some of the facts:
Mortgage Interest Deduction
For new mortgages (no impact on previous mortgages):
- The maximum mortgage amount to qualify is lowered from $1 million to $750,000.
- Still available on a first or second home, but combined cannot exceed $750,000.
- No longer allowed for home equity loans (it was previously capped at $100,000).
Because this deduction remains a still significant amount at $750k, this change will have minimal impact on homes under $1M. There will be some downward pressure on home prices above $1m, however, this will be offset by what are likely to be record corporate profits and a record stock market (thanks to other parts of the new Tax Code), both of which have a direct positive correlation to the real estate market.
State and Local Taxes (SALT)
Maximum of $10,000 deduction for state and local income, property, and sales taxes combined for individuals.
The impact of SALT and mortgage deductions only impacts those who itemize, and there will be fewer people itemizing due to the doubling of the standard deduction and Alternative Minimum Tax (AMT). Mortgage and SALT deductions have no impact on foreign buyers. As global economies continue to thrive, foreign buyers will continue to invest in NYC.
Like-Kind Exchanges and Capital Gains Exculsion
Like-Kind Exchanges remain for real property not held primarily for sale. No changes were made to the capital gains primary residence exclusion, nor to capital gains rates.
The protection of the 1031 Like-Kind Exchanges and the protection of the Capital Gains Exclusions on the Sale of Property, will also be stabilizing market influences in the months to come.
In short... there will be changes, but change is a constant in life and should be seen as opportunity. Feel free to reach out to me to discuss further, and I can happily recommend some great financial professionals to help you explore your options for this coming year... talk to you soon!