If you have been anywhere near a TV or the internet recently, you've probably heard about the GOP tax bill. From the elimination of moving expense deductions to caps on deducible mortgage debt, these new reforms have been criticized for reducing incentives to buy a new home. Here are some of the ways this bill could impact the real estate market, and you.
Property Tax Caps
The bill places a new cap on property tax deductions, with a limit of $10,000 on combined property, state, and local income taxes. For homeowners with luxury homes and/or multiple homes, this new deduction cap could increase what you pay in 2018 and beyond.
For many, these caps are increasing anxieties over the amount that will have to be paid in taxes this year, especially for those who have recently bought or are looking to buy a new home. Some homeowners in Florida have attempted to pre-pay 2018 taxes to avoid the coming changes, however, officials have stated that tax bills will not be open for collection until after November 1st, 2018.
Mortgage Caps
The new bill also places caps on the amount of claimed mortgage deductibles. Homeowners and investors will now lose the ability to claim deductions on anything over $750,000 of mortgage debt on primary residences. If you purchased your home before December 15th, 2017 you can keep the previous $1 million limit, but only for first homes. Homeowners will be able to deduct interest on second homes but only up to the $750,000 limit. This loss of $250,000 of deductibles will no doubt affect homeowners and investors accustomed to larger deductions.
For Florida's luxury and vacation homeowners and investors with multiple properties, this loss of a tax break has the potential to raise homeowners' taxes despite other income-based tax breaks. These changes have the potential to negatively affect not only the individual level but also on the luxury real estate market.
Luxury Market
These new reforms have the potential to hit national housing prices, with luxury real estate markets getting hit the hardest. As higher taxes provide less incentive to buy, prices could drop. With its large number of luxury and vacation homes, some predict that South Florida will suffer some of the biggest drops in housing prices. Moody reports predict a national impact of -4% on housing prices over the next two years, with an impact of -2% to -4% in Florida.
As buyers and investors are waiting to see what their post-reform taxes will look like, there may be more hesitation to buy into the luxury sector. This could translate into sales taking longer, with less confidence and incentive to invest in a new luxury or second home.
Potential Benefits for Florida
Some predict there will be benefits for the Florida real estate market with this tax reform. Corporate tax cuts are expected, by some, to improve the economy and job market, encouraging the real estate market. Others say that with Florida's lack of state taxes, buying homes in the state may become more appealing to the luxury buyer after the new deduction limits.
This new tax bill brings some of the most broad-ranging reforms that United States' tax law has seen in more than 30 years, and brings significant reductions to homeownership incentives. The tax bill brings a lot of changes, and it will take time to see the full effects it has on the real estate market and beyond as it is put into action.
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Mark Kravitz is the exclusive agent representing the Plantation and Davie, Florida real estate markets as a member of the Haute Residence Real Estate Network. Reach him at 954-739-7653 and view all of his listings here.
