HOUSINGNEWS REPORT
PERSISTENT HOME PRICE APPRECIATION PRESSURES MARKET ORTHODOXIES
There is nothing which suggests that alternative work arrangements will somehow decline in 2018. If anything, this is a trend which will grow and such growth will continue to influence affordability concerns. Tax Reform Repercussions One of the great unknowns for 2018 will be the impact of tax reform, the 1,100-page plan passed along party lines at the end of 2017. The new rules are complex but for many owners real estate expenses will go up. The legislation itself estimates that the “repeal of itemized deductions for taxes not paid or accrued in a trade or business (except for up to $10,000 in state and local taxes), interest on mortgage debt in excess of $750K, interest on home equity debt, non-disaster casualty losses, and certain miscellaneous expenses” will cost taxpayers an additional $668.4 billion between 2018 and 2027. First, for a first and second house owners will be able to deduct the mortgage interest on as much as $750,000 in acquisition debt, down from $1 million under the old rules. Second, interest on home equity lines of credit in most cases will no longer be deductible. If you use home equity financing for home improvements the interest can be deductible. In general terms the new rules look like this:
Third, property taxes remain deductible however the write-off is limited to not more than $10,000 for the combination of property taxes and sales taxes as well as state and local income taxes. At first it seems that real estate write- offs largely remain in place, but in practice many taxpayers will not itemize. That’s because the personal exemption ($4,050 per person in 2017) has been eliminated and at the same time the standard deduction has been increased to as much as $24,000 for a married couple. The result, according to the Tax Policy Center, is that only 4 percent of all households will claim the mortgage interest deduction versus 21 percent under the old rules.
of the disincentive to buy under the new tax law,” says Mendenhall. “In other states with strong job markets and considerable buyer demand, the lack of supply will continue to keep prices moving at a steady clip of 5 percent and higher. Overall, NAR is forecasting for home prices to rise around 2 percent.” How the new tax rules will impact home price increases is difficult to say because many factors impact values. However, what’s clear is this: the tax difference between owning and renting is largely eliminated if both owners and renters take the standard deduction. What had been a major real estate selling point has been rendered largely moot by tax reform.
“In high-cost, high-tax states, home prices will likely decline some because
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FEBRUARY 2018 | ATTOM DATA SOLUTIONS
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