Until, the discussion, about some of the components, of the tax reform legislation, enacted, at the end of 2017, few people, paid much attention, to what is often, referred to, as, SALT, or state and local taxes. This provision, appears to favor, many of the smaller states, where there are, often, lower, income and property taxes, etc, over, those, which may have higher taxes. Was this a coincidence, and mere, by – product, or, a concerted political effort, to punish, states, which, generally, vote against the party of this President? This article will attempt to, briefly, consider, examine, review, and discuss, the impact of this limitation, on the ability to deduct, local and state taxes, on various aspects of real estate.
1. Effects higher – priced, and, taxed, houses and properties, more: This provision has impacted, those owning higher – priced, and taxed houses, and properties, to a larger degree, than other homes. Since the limit (or, cap) on how much one is permitted to deduct, is only $!0, 000, it means, if a state, has both, income taxes (state, and/ or local), as well as higher real estate taxes, the owners, lose any potential benefit, from the so – called, tax reform. The higher the differential, the greater the impact!
2. Makes buying harder, especially, for, first – time homeowners: These provisions make it far more challenging, to home buyers, especially, first – time homeowners! When there is less tax benefit, the overall benefits of owning a house, versus, renting, is severely reduced! The lower the tax benefit, the net effect, is, often, severely increasing the overall costs of buying, and owning, a home, of one’s own!
3. More susceptible, when mortgage interest rates, increase: Obviously, when mortgage interest rates, rise, it means, someone has a larger, monthly responsibility. When this is combined, with higher taxes, and limited tax savings, the probability of effecting the real estate market, and pricing, becomes, potentially, pronounced!
4. Perceptions: The tax legislation, appears, to benefit, those who, do not itemize, at the expense, of those, who do! Perhaps, the biggest challenge, may be, how potential buyers, perceive it, and whether, it affects, the price, they are willing, and able to pay, for a home. Obviously, in true, net terms, if one can no longer deduct, all, of the state and local taxes, the advantage of home ownership, is reduced, and, many taxpayers, suffer, to a far greater extent!
What we need, is a fair system, where there is more understanding, than, there might be, under present circumstances! Greater involvement, and fairness, should be, the rule of the land!