How tax bill may affect the housing market

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It is really too soon to tell how the tax bill will affect the housing market. On the one hand, it shouldn’t have much of an impact on housing that is costs less than 650K because the mortgage interest on a mortgage up tp 500K will still be tax deductible, for those who itemize.

If the tax bill passes as is  95% of taxpayers will claim the standard deduction rather than itemize, according to experts because the standard deduction will almost double.

That means that mortgage interest will not be deducted for most. Currently according to the IRS about 31% of taxpayers itemize, and can deduct mortgage interest.

If higher priced homes decrease in value that doesn’t mean that lower-priced homes will follow. The demand for homes at the lower end of the price spectrum is very high and I can’t see that changing.

There is some speculation that if interest on loans used to pay for second homes is not longer tax deductible that prices of the summer cabins in Northern Minnesota will go down. I will believe it when I see it.

The five of eight rule may have an impact.  Under current law, you can exclude up to $250,000 ($500,000 for married taxpayers) in capital gains from the sale of your home so long as you have owned and resided in the house for at least two of the last five years.

That rule is going to change to five of the last eight years. The rule will make homeownership more of a long term proposition and home sellers may want to consult a tax advisor if they wish to sell before they have owned the home for eight years.

People used to move about every 7 years but in the last decade, that has changed to about every 10 years so it is hard to say what kind of an impact the new five of eight rule will have on the real estate market.

I remember the big tax cuts during when Reagan was president. At the time we were in a recession. I don’t really understand why a tax cut and jobs bill is being passed during a time of high employment. In fact, we may not have enough workers to fill more jobs.

It isn’t clear to me right now as a business owner if my taxes will go up or down. The tax cuts are aimed at large corporations not at small businesses like mine that make up 99.7% of all U.S. businesses.

The Republican party used to be against running huge deficits but now they are in favor. Here is a link to a list of how they voted.

The bill will not be made into law until it is reconciled with the House bill and signed by the president who will sign anything he is asked to sign . . . or at least he has so far.

There are still numerous advantages to home ownership as opposed to renting. Interest rates are likely to continue to rise so buying a house now might make more sense than buying it later.

Real estate has been a tax favored investment for decades yet homeownership is currently at a 50 year low last July and has started to go up again. Will new tax laws cause home ownership to fall again?

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