It’s been difficult to get a handle on how the GOP Tax Bill will impact Phoenix real estate. Mostly, it has been because a final version of the bill has been hard to come by as changes continued. But with the bill through the conference committee process, the assessment gets easier. From the general real estate perspective, the two biggest issues have been the mortgage interest deduction and the property tax deduction. Here’s one man’s view:
Mortgage Interest Deduction
Currently, homeowners can fully deduct interest on up to $1 million in real estate mortgage loans. The GOP Tax Bill is reducing that cap to the first $750,000. Will this change have any impact on the average homeowner? Despite the warnings of doom from the National Association of REALTORS, the answer is not really. The vast majority of homes in the Phoenix real estate market fall below the $750,000 mortgage level. (Assuming a 20 percent down payment, a $750,000 mortgage means a $937,500 sales price.) Where this will have an impact is on homes in the upper price points of the market and real estate investors who have leveraged more than the $750,000 across multiple properties.
Property Tax Deduction
Currently, the so-called SALT deduction – state and local taxes – for local property taxes is unlimited. Under the GOP Tax Bill, the SALT now will be capped at $10,000. (Insert low-sodium joke here is you choose. I’ll wait.) By and large, this is going to be a non-starter for most homeowners in the Phoenix real estate market because we are a ridiculously low property tax state. Much of the talk has talked about California, New York and New Jersey but I’ve had clients from Nebraska shaking their heads at how low property taxes are here. Like the mortgage interest deduction, the property tax deduction reduction will impact mostly higher price points and real estate investors.
Other Changes in the GOP Tax Bill
Truthfully, as I’m not a tax expert, I’m going to stay out of the weeds here. The personal exemption is going up, which for some could offset the caps on the above deductions based on their own specific tax situation. There also is a change in pass-through taxation for LLCs – again, this is a conversation best had with your accountant or tax attorney.
On the specifically real estate side of life, though, the GOP Tax Bill doesn’t look like it will have a major impact in the Phoenix real estate market.