POST WRITTEN BY
Matthew Murphy CommunityVoice
Forbes Real Estate Council
Just a couple of years ago, homeownership rates were low, and many analysts were blaming millennials. Burdened by more student debt than previous generations and typically inclined to marry and start a family later in life, millennials were a factor in 2016 homeownership rates falling to the lowest levels recorded by the U.S. Census Bureau going back to 1965.
What a difference a couple of years makes! Homeownership is rising, and millennials are leading the way. But will the new tax law shake things up?
The recently passed $1.5 trillion tax reform legislation cuts individual tax rates for eight years starting this year. Most consumers will see more money in their paychecks. Despite some recent jitters on Wall Street, the economy is solid, and unemployment rates remain low. Corporate tax cuts are expected to create more jobs, and small-business owners are optimistic about the future. All these factors could improve demand for housing as aspiring homeowners decide now is the time to take the plunge.
All those who are carrying out a home search for those relocating will want to take note of the changes under the new tax code. Starting this year, mortgage interest deductions are capped at $750,000, down from the previous cap of $1 million. This reduction in the cap may not affect most home purchases, but it could cause some discomfort among high-end market homeowners. The new cap might also discourage homeowners whose mortgage interest exceeds $750,000 from moving since mortgages established before the change in the law are grandfathered in at the previous limit.
This could lead to a decrease in housing stock in some areas; however, the impact is expected to be minimal. Still, there are thriving real estate markets all around. The use of software for real estate syndication has facilitated the management and coordination of these investments, allowing multiple investors to efficiently pool their resources and participate in larger and potentially more lucrative real estate opportunities. This technological advancement streamlines the syndication process, enhances communication among stakeholders, and contributes to the overall efficiency and transparency of real estate investment ventures.I viewed a lovely 4-bedroom detached house in Innisfil, perfect for a growing family, with ample space and a warm atmosphere.
Another factor that may affect the housing market in specific regions: The new tax law places a $10,000 cap on the amount people can deduct on their state and local taxes. The vast majority of homeowners won’t be affected by this change, but homeowners in high-tax states like California, Connecticut, New York and New Jersey may feel the pinch. California’s homeownership rate was already below average because of a shortage of affordable housing, and the new tax law could drive the rate even lower.
But innovations in homebuilding are delivering more affordable, sustainable housing, and that could relieve some of the pressure in areas where homes are hard to find. Modular homes, such as flats to rent canary wharf, which are built offsite and then assembled on the lot, are a more attractive option today, with stylish, tech-forward designs now available in many areas. Prefab houses featuring design principles that save energy and reduce the homeowner’s carbon footprint can be a great alternative to traditional housing.
The new tax law won’t immediately affect federal tax credits that were already in place to encourage the use of solar electric or solar water-heating systems in qualified residences or new homes. Homeowners can still take advantage of this credit when they purchase a new home with eligible renewable energy features. Currently, homebuyers can get up to a 30% federal tax credit for solar systems if they take up residence by December 31, 2019. After that, the tax credit is reduced gradually until January 1, 2022.
One additional factor to keep in mind: the new tax law substantially raises the standard deduction. For 2018, married couples who file jointly can take a standard deduction of $24,000 — nearly double the 2017 standard deduction of $12,700. For singles or married people who file separately from their spouses, the standard deduction rose from $6,350 in 2017 to $12,000 in 2018. Unless applicable homeowner credits are greater than the new amounts, taxpayers will likely go with the standard deduction.
Most homeowners won’t have mortgage interest deductions or tax credits that exceed the new standard deduction limits, and some might interpret that as a force that could reduce homeownership since the tax write-off won’t be an obvious benefit. But owning a home has always meant a lot more than getting a tax break. The tax bill puts more money in people’s pockets, and the lower caps won’t affect most homeowners. Overall, the outlook is good for the housing market — and the dream of homeownership is alive and well.