What to know about the new tax bill limits in 2018

The GOP finally pushed through its tax package, and the reaction has been interesting to say the least. While some seem to love it (The Wall Street Journal said the bill is the best thing to ever happen to our economy), many others hate it. Regardless of how you feel about the bill, it is signed in now and it’s time to see how it affects you, as a homeowner, seller or buyer.
My friend Jay Vorhees at JVM Lending put together a blog detailing some main points about the GOP tax bill and how it may affect real estate. Here are the main thoughts:
1. Current homeowners will be grandfathered in and still allowed to deduct interest against $1 million of mortgage debt. In 2018, buyers will be limited to $750,000 and interest against home equity lines will not be deductible.
2. State and local tax deductions will be capped at $10,000. This will be difficult for people in California.
3. Standard deductions are doubling to $12,000 for single filers and to $24,000 for married filers, so many homeowners won’t have to deduct their interest and property taxes anymore.
4. We have no idea what exactly the bill will do for the market when all is said and done, but for now, we can expect the low-inventory, high-demand market to suffer in high-end areas down the road, while remaining neutral in the short term.
5. To fully understand the bill’s impact on you, see a CPA. Defer your commissions. And if you’re planning an out-of-state move, consider relocating to a low-tax state like Florida, Texas or Nevada.
I’d like to expand on #5 quickly – as Jay mentioned, there will be a new $10,000 cap on tax deductions starting in 2018. If you paid off your property taxes before January, you should be able to save thousands of dollars on that by avoiding the new rule for a year. And if you are planning a move out of the Bay Area to another part of California or another state, you should be consulting a realtor or a CPA to see what kind of savings you can get!

Don’t hold your breath for another recession

According to an Inman.com article, Kevin Thorpe (Global Chief Economist at Cushman & Wakefield) says we are going to have a very long economic expansion.

At the National Association of Real Estate Editors conference, Thorpe said, “The U.S. will not be going into recessions anytime soon. Recessions don’t just happen. First, we need to see imbalances somewhere in the economy — too much credit, too much exuberance in any particular sector.”

A frequent speaker in the local real estate arena, Carol Rodini and some Bay Area economists agree that some changes Donald Trump’s Republican cabinet will make – redoing the tax code, trying to replace Obamacare, etc. – will be good for the economy.

Carol recently noted the top 10 tech companies in Silicon Valley are sitting on about $3 trillion in cash between their domestic and foreign accounts. Those companies grew about 7 percent last year and they believe that will continue this year.

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So, if and when we end up in a recession, she believes it will be about a 4 percent dip. The Bay Area, because of Silicon Valley, will not feel it like the rest of the nation. For those buyers who are hoping for a dip so housing will be more affordable, you might want to buy now, before interest rates go up. For sellers: now and the near future is a good time to list!

The climbing stock market’s effect on housing

Did you know interest rates climbed about 1/4 of a percent in the aftermath of Donald Trump’s election? This was the biggest single-day rate increase in three years.

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Despite being told over and over again that a Trump victory would result in lower rates, the opposite has happened. In a recent Forbes column (Dec. 6 issue) Gary Shilling said he thinks the markets have massively overreacted to Trump’s election. He points out that the root causes of weak economic growth (that have kept rates low) will remain. He also says that Trump’s proposed tax cuts and stimulus programs will be watered down by Congress; the expectations of an economic boom are overblown. If he is correct, this means rates may fall again.

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This now begs the point: nobody can predict anything in this market. So, if you have been thinking about buying or selling, is it time to get off the fence? Rates are still historically low, but for every 1/2 percent increase in rate on a $500,000 loan, the payment increases about $140 to $150 (and even less after “tax benefits”). Should buyers and borrowers wait to see if rates fall before moving forward with transactions? Absolutely not. Borrowers can easily take advantage of no-cost refi’s if rates fall.

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If you do decide to buy or sell, give me a call, I would love to help you navigate the process!