The costs of properties have increased due to these two changes, and the tax deduction has been cut in half. These changes have going to be a major blow to average homeowners. However, despite all the changes, it is believed by experts that the real estate industry itself will do just fine.
Most likely to be affected
The Tax Cut and Job Acts are two changes that are more likely to affect people who have recently purchased a property. People who made purchases years before and have a smaller mortgage payment will be the least affected by the new changes.
Furthermore, people who have already paid off their properties will not be affected at all by these two changes. However, do take note that you won’t have to pay more tax as opposed to an average person.
Also, both single and married people will get to experience double tax exemption as compared to what they used to get.
What issues does the real estate industry have?
These tax reform proposals have introduced three major changes that the real estate industry isn’t so keen on. The mortgage interest deduction has been limited and is now half of what it used to be. This also happens to be valid for primary residences only.
The second change is that the standard deduction is being doubled. This has led to a lot of households not feeling the need to be bothered about the mortgage interest deduction anymore. And lastly, some strict limits are being placed on who can now claim capital gains when the house is being sold.
There are some particular locations where home buyers are most likely to be impacted. While the mortgage interest deduction is being limited and many households will only be able to deduct interest from the first half million of the new mortgage debt they will receive, these households will still be paying less tax due to the Tax Cut and Job Act. Despite what people may think, tax reform will have no effect on household formation.
After these changes, people will have more after-tax money with them, which means more people are likely to look for a house. Overall, the market should increase and with these new changes, the real estate industry will be just fine.