Law Office of Ryan S. Shipp, PLLC

Standard allowance increase could cut home prices

A part of the Trump tax reform plan aimed at simplifying the Internal Reveneu Code may save millions of households money on their returns, but it has also engendered sharp criticism. At stake is the home mortgage interest deduction, which causes millions of homeowners to itemize their taxes each year for savings beyond the standard deduction. By raising the standard deduction, many will no longer need to itemize to receive the same refund.

Residential real estate industry groups have already spoken against the change. The National Association of Realtors, the largest industry group in opposition, claimed that residential property prices could fall 10 percent nationally and hurt homeowners in the process. Moody's chief economist claims that an average 4 percent price reduction was most likely.

Behind the worries over a price reduction was the idea that homeowners primarily make the investment to enjoy the deduction. One UC Davis professor stated the deduction has actually inflated residential real estate prices. About 30 percent of households itemize each year. According to NAR data, the proposed standard deduction increase would reduce that to 5 percent by removing the incentive to itemize.

Many factors, from proposed tax reforms to interest rate hikes, can effect the bottom line of Palm Beach County investors and individuals looking to enter real estate agreements. For instance, residential development companies may want to focus on renter-friendly properties should the proposed reform measure pass, and sellers may want to rethink contract terms. Legal counsel with experience in residential real estate law can help walk investors and developers through the best options available for whatever the market brings next.

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