New tax legislation was signed by President Donald Trump at the end of last year. There has been talk around the repercussions in the real estate industry and how these changes will impact homeowners in the PNW region. For some, these changes are seen as federal government withdrawing from supporting homeownership.
The Mortgage Interest Deduction will how have a debt cap at $750,000.
Though this new cap is higher than the $500,000 that the House proposed, it’s lower than the previous threshold. This new, lower cap will only apply to new mortgages. Mortgages closed before December 15, 2017 are subject to the previous $1 million threshold.
The tax law makes it costlier for buyers of expensive homes to borrow. This could mean that homeowners with mortgages above $750,000 will be less motivated to trade up to a larger, more expensive home. Because most homes in the United States don’t exceed $750,000, this measure will predominately affect coastal states, like California, New York, and Washington. The National Low-Income Housing Coalition estimates that just 1.9% of mortgage originations from 2013 to 2015 exceeded $750,000 in value. In competitive housing markets, like Seattle and San Francisco, this could add more pressure to an already tight housing supply.
State and local tax deductions are now capped at $10,000.
Taxpayers can deduct what they pay in state and local property, income, and sales taxes from their federal returns. If you live in a city with high local and state taxes, the new tax bill could have a large impact on your tax bill. According to ATTOM Data Solutions, more than 4 million Americans pay more than $10,000 in property taxes alone.
Less-expensive housing markets will likely not notice much of a difference with the new bill, but more expensive, highly taxed areas will notice a significant difference in the eligible deductions they can file in 2018.