- La Verne Online – La Verne, CA News, Local, Features, Sports, Real Estate, Coupons, Business, Entertainment, and More! - http://www.laverneonline.com -

THE REAL DIRTT: NEW TAX LAW COULD SLAM HOME BUYERS, SELLERS AND RENTERS … BY Colleen Bennett

LA VERNE, California, December 26, 2017 — It appears that owners living in expensive, heavily financed homes came out on the short end of the new tax bill. Renters could also be losers under the tax code’s new provisions.

First, some background, then a closer examination of the new tax bill’s possible effects.

Under the law’s new limits, the most that taxpayers can deduct per return for state income or sales taxes, as well as for property taxes, is $10,000.

That $10,000 limit, however, would be reached quickly if you bought, say, a $1.3 million luxury home in La Verne, leaving you with roughly a $10,380 property tax bill

Your property taxes alone would carry you over the $10,000 threshold, and that’s before you calculated your state income or sales taxes.

The new law also cuts the mortgage interest deduction from $1 million to $750,000. So if you put down 20% ($260,000), and financed the rest ($1,040,000) to meet the $1.3 million purchase, in our example, you would be unable to write off $290,000 in mortgage interest. Under the old law, you would have been able to shelter all but $40,000.

Homebuyers, mindful that they will be able to write off less of their property taxes and mortgage interest, could react by offering less money to home sellers. If enough sellers agree to drop their prices, overall real estate prices could begin to fall or at least cool.

If home sellers aren’t willing to lower their asking prices, however, would-be buyers might elect to stay put in their current homes — and, of course, this could throw a chill into renters looking to purchase their first homes. With fewer homeowners moving up (and less movement in the market from top to bottom), there will be less housing stock for renters to move into. Less supply usually equals higher prices.

There’s one more monkey wrench in all these new changes. The new tax law also has eliminated the interest deduction for home equity loans. So those potential move-up buyers who decided to stay put and remodel after learning about the new caps on their mortgage interest and property tax deductions will be further squeezed and annoyed to learn they can no longer write off interest for a home equity loan with which they had planned to make improvements.

How real estate buyers, sellers and investors react to the new tax code provisions will be interesting to watch. Changing is coming; it’s just not clear at this point if the change will cause a ripple in the housing market or a tidal wave.  

 

As always before entering one of the biggest transactions of your life, please consult your accountant or tax attorney. A loan consultant like Tim Manfro [1], here locally, could also step you through various loan scenarios.