Included among the many tax changes in the 2018 Republican Tax Plan are the following major changes:
- nearly doubling the standard deduction, causing fewer people to itemize beginning in tax year 2018;
- limiting state and local taxes (SALT) to $10,000 per tax return;
- reducing the mortgage interest deduction (MID) from $1 million to $750,000;
- making home equity loans (HELOCs) no longer deductible unless only used to fund home improvements, as well as moving expenses, except for members of the military;
- and doubling the threshold for the estate tax from $5.6 million to $11.2 million for individuals.
As a result of California’s high home values — second highest in the nation, behind only Hawaii — the lower ceiling on the MID affects a significant number of homeowners in California. Other than this, the changes to SALT taxes will have the most tangible impact. However, the new tax rules will have little impact on housing, since taxes don’t have a significant effect on demand.
The next big change is likely to be deregulation. The new director of the Consumer Financial Protection Bureau (CFPB) under Trump is expected to scale back the organization’s involvement in regulating financial industries and protecting consumers. This means the housing and lending industries will start to look more like they did prior to the 2008 recession. This, plus rising interest rates, may portend another recession, possibly in 2019. Fortunately, the impact is expected to be more on the scale of a normal downturn in the market.