How Will Tax Reform Impact Real Estate? | The DeBonis Team

    Calculator - The DeBonis TeamThere’s a lot of uncertainty about the current tax reform and its effect on Real Estate.

    Let’s first take a look at the four key tax changes impacting the housing market:

    1. Deductions for property taxes

    Prior to the new tax bill, if you itemized your deductions, you could deduct all of your property tax. Going forward, this amount will be capped at $10,000.

    2. Deductions for mortgage interest

    The final bill reduces the limit on deductible mortgage debt to $750,000 for new loans taken out after 12/14/2017. Other loans of up to $1 million are grandfathered in.

    3. Home sales exclusion for capital gains

    If you sell your home and turn a profit, then up to $500,000 of that profit is exempt from capital gains tax.

    Although earlier versions of the bill required you to live in the home for five out of the last eight years, the final bill made no changes to the capital gains exclusion. In order to qualify for this exclusion, you must have lived in your home for two of the past five years to claim this exemption.

    4. Deductions for moving expenses

    The final bill repealed the moving expense deduction, except for those who are members of the Armed Forces.

    These are the most relevant tax changes for real estate. If you take a look at these changes, it’s easy to see why there is confusion in the market.

    The first two changes increase taxes on current homeowners and make homeownership less attractive.

    This is a part of why the National Association of Realtors claims that home prices could drop by more than 10% due to the new tax plan.

    On the other hand, the last change makes it more expensive to sell your home. As a consequence, they could keep some homes off the market.

    And in the current situation, when housing inventory is near record lows, that could maintain or drive up home prices.

    So what’s the upshot?

    I’m afraid it’s too early to tell. We’ll have to see how the different changes play out in reality, and how they interact with other real estate conditions.

    However, there does seem to be a consensus among experts that current reforms might drive home prices down somewhat in the midterm.

    On the bright side, home sellers do still get to take advantage of the home sales exclusion for capital gains. That is a major victory for real estate.

    That’s why, if you’ve been thinking of selling your home, now might be a good moment to start the process. To get an idea of what your home is worth in the current market, take a look at this home value calculator, which takes into account recent Greater Riverside Area Home Sales:

    Enter your street address here to find out what your Home is Worth

    And if you are thinking of buying, then the current uncertainty is likely to bring some unexpected deals onto the market. You can see all current Greater Riverside Area Homes For Sale here:

    Click here for all available Greater Riverside Homes For Sale

    Finally, if you have any questions, whether you are buying or selling, you can always call us at 951-203-4426. We can give you more specific recommendations based on your unique situation.

     

     

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