Law Office of Ryan S. Shipp, PLLC

Tax reform could lead to lower real estate values

Florida senators may soon be voting on the tax reform package currently being debated in Congress. The bill's success or failure could have an impact on home values across the nation. According to an analysis by economists from the National Association of Realtors, a combination of new limits on the mortgage interest tax deduction and the capital gains exclusion for home sales could cause some housing markets to lose between 10 and 21 percent in value within the first two years after the law is enacted.

The Republican lawmakers behind this bill argue that the provisions related to the standard deduction, which is being doubled for most taxpayers, are more beneficial than the mortgage interest and property tax deductions. While this makes sense from a purely numerical point of view, some analysts say history shows that tax breaks associated with home ownership and mortgages are major drivers of the housing economy.

If the tax bill is passed, real estate analysts believe that first-time homebuyers might lose interest in the American housing market, which is a major contributor to the gross domestic product. Loan officers are used to explaining the benefits of the mortgage interest tax deduction to renters whose desire to become homeowners is mostly related to tax advantages.

It is interesting to note that the current tax reform proposal echoes the idea of trickle-down economics formulated during the 1980s; however, even the late former President Ronald Reagan believed that the mortgage interest tax deduction was vital to the American economy. If residential real estate values start falling after tax reform goes into effect, law firms could find themselves busy helping property investors looking to take advantage of low prices.

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