2018 Tax Laws Will Lower Home Values

2018 saw a few important changes to the tax laws regarding deductions, both standard and itemized. The standard deduction has been nearly doubled, so more people are taking it. This results in lower taxes for people who regularly take the standard deduction anyway, but higher taxes for about half those who used to itemize. It also means fewer people can take the mortgage interest deduction (MID), since it requires itemizing.

As for itemized deductions, it has become more difficult to itemize certain deductions, especially in high-priced California. State and local taxes are now limited to $10,000, less than the average Californian pays.  The MID ceiling was reduced from mortgages of up to $1 million to mortgages of up to $750,000. For home equity lines of credit, qualifying for the MID requires that they fund home improvements. Only military families still retain the moving expenses deduction.

These changes mainly affect areas with high incomes and high housing costs. While home prices have not actually decreased in California since the changes went into effect, their values are expected to be about 5.7% less than what would be projected without the tax changes, according to the Cleveland Federal Reserve Bank. This has slowed down the rising prices, and may magnify the effect of a recession in the near future. The Cleveland Federal Reserve Bank suggests the following average price differences as a result of the new tax laws:

  • -8.4% in Bakersfield
  • -7.0% in Fresno
  • -8.4% in Los Angeles
  • -8.6% in Oakland
  • -8.6% in Riverside
  • -8.5% in San Diego
  • -5.9% in San Francisco
  • -7.7% in San Jose
  • -7.1% in Stockton; and
  • -8.7% in Vallejo.

More: http://journal.firsttuesday.us/california-to-see-declining-home-values-due-to-tax-changes/65634/?utm_source=newsletter&utm_medium=email&utm_content=102918&utm_campaign=saprior

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