Proposed tax bills and real estate

I am going to limit my commentary to the part of the Federal tax bill that directly impacts real estate. For St. Paul homeowners the sky is probably not falling. Yes, the mortgage tax deduction is being limited to interest on the first 750K

The majority of mortgages are less than 750K and here in St. Paul where the median home value is around 200K most will not be affected by the changes in the MID.

The first 10,000 paid property and state taxes will also be deductible for those who qualify. Property taxes in St. Paul are 1.33% of the assessed value of the property. State income tax rates range from 5 to 10%. Most middle-income households are going to be in the 7 to 8%  range. [see the best run states]

With the standard deductions being raised fewer will qualify. Currently, there are many homeowners who do not get any tax benefit from owning a home because they do not itemize and the reason they do not itemize is that the standard deduction is higher than the total of all possible deductions added together.

The incentives for incurring more mortgage debt will be gone for some. It is even possible that owning lake homes in Minnesota will become less popular and the values will decline.

There are some advantages in having less mortgage debt. Money can be invested in other things. Maybe some will start a business rather than owning a lake home and take advantage of business tax cuts.

Most homeowners I know love owning a home but I think new tax laws will impact the housing market. Taxation has intended and unintended consequences. I think it is important to keep it all in perspective.

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