Experts Say Tax Reform Impacts Are a ‘Moving Target Going Forward’
John Jordan | February 2018
TARRYTOWN—Tax experts told approximately 175 Realtors recently that some of the fiscal and real estate impacts of the recently enacted Tax Reform and Jobs Act are still unclear.
The Hudson Gateway Association of Realtors Broker-Owner-Manager Committee presented a program on Feb. 13 at the DoubleTree Hotel in Tarrytown that featured accountant and income tax crisis specialist Ron Friedman CPA, CTRS and real estate attorney Bobbie Anne Flower Cox. Friedman and Flower Cox gave a detailed review of the various tax bracket changes, deduction eliminations, modifications and misconceptions of the tax reform legislation that was signed into law by President Donald Trump in December.
Friedman began his presentation by saying “There is a lot of information out there. I can tell you that a lot of the i’s and a lot of t’s have not been dotted and crossed yet so this (the Tax Cuts and Jobs Act) is a moving target going forward.”
He provided a detailed look at the tax bracket changes, modifications and eliminations of provisions for personal and business tax filers. He noted the controversial capping of the state and local tax deductions (SALT) at $10,000 and the mortgage interest deduction at $750,000 after Dec. 14, 2017. The mortgage interest deduction was capped at $1 million prior to Dec. 14, 2017.
Another potential negative impact on the real estate market could be the elimination of deductions for home equity lines of credit, Friedman said. “However, there is some discussion about whether home equity lines of credit, if used for the purchase of a primary residence or the substantial improvement of a primary residence will still be deductible? So that is a moving target we will have to keep on top of,” he noted.
Friedman related that the various revisions and changes to the tax code and their implications on taxpayers and their investments took him “the better part of a weekend to understand how the mechanics work.” He ended by advising those in attendance, “It is a work in progress, so stay tuned.”
Flower Cox, an attorney based in Bronxville, said the tax reform legislation has created what she called the “Wild West” in the financial and legal industries. “It is such a new law that there is no precedents,” she said. “So attorneys and accountants alike are trying to understand the law, but since there is nothing decided and there are no regulations that have been written yet, the interpretation of the law by professionals is on an individual basis.”
In her presentation, Flower Cox reviewed some of the major points of the act that included: reducing tax rates for businesses and individuals; increasing the standard deduction and family tax credits; eliminating personal exemptions and making it less beneficial to itemize deductions; limiting deductions for state and local income taxes and property taxes; limiting the mortgage interest deduction; reducing the alternative minimum tax for individuals and eliminating it for corporations; reducing the number of estates impacted by the estate tax and repealing the individual mandate of the Affordable Care Act, known as “Obamacare.”
She noted that while most provisions of the Tax Cuts and Jobs Act went into effect on Jan. 1, 2018, not all would affect 2017 tax filings, such as the standard deduction changes for example. Flower Cox noted that for the 2017 tax year the standard deduction for a single taxpayer is $6,350 and $12,700 for married couples that file jointly. The newly passed tax reform measure increases the standard deduction to $12,000 for individuals and $24,000 for married couples that file jointly. However, those changes don’t go into effect until taxpayers file in April 2019.
Flower Cox said she believes the impact of the tax reform law will depend on how many people are impacted by the capping of the SALT deduction. She said the number of sellers and buyers impacted by those changes (as well as the capping of the mortgage interest deduction) and the degree those changes will increase their tax levy will ultimately determine just how severe the impacts will be on the real estate market.
She believes that most home owners will pay more in taxes due to the SALT deduction cap and subsequently buyers will have less in their budgets to purchase a home once the higher taxes are factored in.
“If the number of people who fall into that category of having this $10,000 cap affect them, it is going to affect the market in a sense that now they can’t afford these prices, so prices are going to have to drop for everybody to start to participate in the market,” Flower Cox theorized. The level of property tax on a particular property will become even more of a key issue in a sale due to the SALT cap, she added.
She advised Realtors that one way to perhaps aid a prospective homebuyer is to see if the property tax levy could be grieved. A successful grieveance would increase the value of the home and will therefore raise the amount of money a buyer can spend on that home.
HGAR CEO Richard Haggerty also briefed the attendees on the latest news on the tax reform issue and related that NAR was able to secure some key changes prior to the bill’s passage that benefited the real estate industry.
He said the legislation was far from perfect, but thanks to NAR’s efforts and the tremendous response by HGAR members to NAR’s Call to Action, the bill’s impact on the industry could have been much worse.