There's a lot of uncertainty about the current tax reform and its effect on real estate. Let's first take a look at the four key tax changes impacting the housing market:
1. Deductions for property taxes:
Prior to the new tax bill, if you itemized your deductions, you could deduct all of your property tax. Going forward, this amount will be capped at $10,000.
2. Deductions for mortgage interest:
The final bill reduces the limit on deductible mortgage debt to $750,000 for new loans taken out after 12/14/2017. Other loans of up to $1 million are grandfathered in.
3. Home sales exclusion for capital gains:
If you sell your home and turn a profit, then up to $500,000 of that profit is exempt from capital gains tax if lived in your home for two of the past five years.
4. Deductions for moving expenses:
The final bill repealed the moving expense deduction, except for those who are members of the Armed Forces. These are the most relevant tax changes for real estate. If you take a look at these changes, it's easy to see why there is confusion in the market.
The first two changes increase taxes on current homeowners and make homeownership less attractive.
This is a part of why the National Association of Realtors claims that home prices could drop by more than 10% due to the new tax plan.
It is too early to tell the long term ramifications. However, there does seem to be a consensus among experts that current reforms might drive home prices down somewhat in the midterm.
On the bright side, home sellers do still get to take advantage of the home sales exclusion for capital gains. That is a major victory for real estate.
That's why, if you've been thinking of selling your home, now might be a good moment to start the process. To get an idea of what your home is worth in the current market, take a look at this home value calculator, which takes into account recent Phoenix Metro Market sales:
And if you are thinking of buying, then the current uncertainty is likely to bring some unexpected deals onto the market. You can see all current Phoenix Metro Market homes for sale here:
Finally, if you have any questions, whether you are buying or selling, you can always call me at (602) 413-8195. I can give you more specific recommendations based on your unique situation.
Have a great day,
Monique Walker
