Realtors Brace for Federal Tax Reform Passage; Reaction Mixed on Bill’s Impact on Market
John Jordan | December 14, 2017
WHITE PLAINS—With House and Senate Republicans putting the final touches on federal tax reform legislation, Realtors both here and across the nation are preparing for the bill’s passage, possibly before Christmas, and what impacts it could bring to the housing market in 2018.
Prominent local Realtors offered mixed opinions on what impacts tax reform will have on the housing market, which ranged from having little effects to a view that the tax changes could have significant impacts on some local high cost and taxed locations, particularly in the southern sections of the Hudson Valley.
At press time GOP federal lawmakers have agreed to modifications to the respective House and Senate tax reform bills in the reconciliation process. The modifications, including a change to the loan limit on the mortgage interest deduction, are aimed to muster up enough support for the bill’s passage before the Christmas holiday.
According to published reports, the modifications include lowering the cap on the MID from $1 million to $750,000 instead of $500,000 as originally proposed; capping the state and local property tax deduction to $10,000; cutting the corporate tax rate from 35% to 21% beginning in 2018; ratcheting down the top individual tax rate to 37% from the current top rate of 39.6%; retaining the estate tax but increasing the threshold where the tax would kick in to $11 million from $5.6 million and the repeal of the corporate alternative minimum tax.
HGAR President Dorothy Botsoe, broker/owner of Dorothy Jensen Realty of White Plains, said there has been no local impact thus far on the tax reform debate in Washington, DC. Her firm, which brokers both conventional residential sales and REOs throughout the region, said buyers have not pulled out or put off a residential purchase until next year due to the questions surrounding tax reform.
She added that most first-time buyers are looking for a place to live and while some have expressed concern about the possible loss of deductions, most have not enjoyed those deductions in the past as renters.
While the industry has expressed at times grave concerns over the details of the tax reform legislation, Botsoe told Real Estate In-Depth, “Based on my own marketplace, I am not seeing where it is affecting my business at all. My clients, if they are going to buy, they are going to buy.”
HGMLS Director Leah Caro, who is president and principal broker of Park Sterling Realty of Bronxville, said that one deal has already been delayed in her market due to the tax reform debate. A buyer’s agent with her firm represented a Manhattan buyer, a controller for a hedge fund, who decided not to buy a home in Westchester and instead opted to rent for a year in order to properly gauge the impacts of the final tax reform package.
In discussions with her firm’s agents, Caro says most feel that buyer demand from Manhattan home renters will continue unabated because most choose Westchester for a lifestyle change. However, demand from Brooklyn renters to Southern Westchester, could be affected because Kings County offers a more suburban-type location and taxes are low there.
“Someone who is living in a townhouse in Williamsburg, may say you know what, I don’t need to be in Hastings.”
Caro believes that in her market area in Southern Westchester, current market conditions may be reversed in 2018 with more sellers than buyers. She said that while high cost and higher taxed locales could be impacted negatively by tax reform, lower cost areas could see an improvement in activity in 2018. She also believes that senior homeowners on fixed incomes will be adversely impacted by the cap on state and local property taxes and the loss of the SALT deductions.
“I think the communities that have lower taxes and high perceived value might do better,” Caro added.
“I think that there is going to be some financial hardship on our seniors and/or we are going to see some empty nesters selling because there is not a real incentive to hold onto a house anymore then,” she said, due to the capping of the MID and loss of SALT deductions. “If you are spending $40,000 on property taxes and can only deduct $10,000, that’s a deduction that could have a big impact, especially for someone on more of a fixed income.”
Joseph Rand, managing partner, Better Homes and Gardens Rand Realty, said that while there has been some discussion among buyers in the market at the moment, he does not know of any that pulled out of a sale due to the tax reform issue.
He said that based on the current revisions to the tax code being discussed, he does not expect any significant impact on the local housing market. However, he said that if a final bill eliminates the interest on a second home, that would have a significant impact on any location that has a significant amount of second-home investment. He did note that Putnam County and other upstate counties that are popular second-home destinations would see a drop in activity.
“There is no question that this tax law as currently proposed creates a number of issues for New York and New Jersey and for blue states in general,” Rand said. While New York and other high costs states will be impacted by the loss of key deductions, there will also be a beneficial impact from the cuts in the top corporate and personal tax rates, which could result in almost a “wash” in both negative and beneficial tax impacts for most home purchasers, he noted.
Rand, Caro and Botsoe all agreed that once reform legislation is passed, Realtors must educate buyers to the true impacts the bill will have on their individual purchase decisions.