For Luxury Buyers, or those thinking about buying their Luxury Home, the new tax law creates some real problems. One such potential buyer voiced concerns: ‘The deductibility of property taxes, or lack of deductibility above $10,000 means it will cost a good deal more to own. In addition, the cap on the deductibility of interest on mortgages above $750,000 is an additional cost.’
Noted Economist Expresses Concerns:
Mark Zandi, chief economist at Moody’s Analytics, a research firm, estimates that in the New York metropolitan region, some counties could see prices 10 percent below where they would have been without the tax bill by the summer of 2019. The median U.S. county will see a decline of 0.8 percent, he predicted.
“House prices suffer under the tax plan,” Zandi wrote in a recent analysis. “The impact on house prices is much greater for higher-priced homes, especially in parts of the country where incomes are higher and there are thus a disproportionate number of itemizers, and where homeowners have big mortgages and property tax bills.” –Washington Post
Now if Mark Zandi thinks that this will impact the New York market, can Florida’s luxury market be far behind in terms of feeling the impact. In the Orlando area luxury market were properties routinely go for $2,000,000 and up and property taxes are dramatically above the $10,000 cutoff, rest assured that there will be an adjustment process.
Some may say that those rich 1% types pay cash, so this won’t bother them, ya know. You might be surprised that almost 50% of the luxury homes above $2,000,000 during the past year were purchased with mortgages.
Three key provisions
After weeks of constant revisions, the final tax bill ended up with three key provisions affecting homebuyers:
- A lower cap on mortgage interest deductions, reduced state and local tax write-offs and an increased standard deduction. Borrowers buying homes after Dec. 14, 2017, can only deduct interest paid on up to $750,000 of home mortgage debt, vs. $1 million for homes purchased earlier. Buyers getting a mortgage of $1 million or more will pay about $3,000 to $4,000 a year more in federal taxes, depending on their individual tax rate.
- But the tax hit is compounded by a new $10,000 cap on deductions for state and local taxes, including property taxes. You can not throw a cat in Winter Park or Windermere and Dr. Phillips without paying significantly more than $10,000 in property taxes.
- The third provision — the doubling of the standard deduction — will significantly reduce the number of households who take advantage of the mortgage interest and property tax deductions by itemizing on their tax returns, some economists said. “There will be people who say, ‘We don’t have to buy. We’ll continue to rent,’” said Oscar Wei, senior economist for the California Association of Realtors. “It will definitely disincentivize people from buying a home.”