How will the Tax Reform Act affect YOUR home value

Repeated with permission from Doug Hutchins – Kentwood Real Estate

I have received several calls the last few weeks asking about the impact the Tax Reform Act will have on residential home prices. Unfortunately I have seen numerous politicized articles forecasting “a 10% or more reduction in home prices” if the Tax Reform Act does pass. Don’t panic. The impact to the metro Denver real estate market should be minimal. High tax states with high home prices (i.e. California and New York), though, could see an impact in their home prices.

One common misrepresentation in the media is that the mortgage interest deduction is going away. NOT TRUE. Based on today’s version of the bill, you can deduct mortgage interest on the first $750,000 of your loan for your primary residence as well as your second home. The old cap was $1 ,000,000. HOWEVER, the $750,000 cap only applies to new loans originated in 2018 or after. You can continue to deduct interest on the first $ 1,000,000 of your current mortgage until you refinance or sell your home. The reduction in the cap from $ 1,000,000 to $750,000 could lessen demand for luxury homes in metro Denver. Fewer people will likely itemize their taxes and take the home mortgage deduction because the standard deduction is doubling. Homeowners with smaller mortgage amounts will actually see their taxes lowered by taking the standard deduction compared to taking the mortgage interest deduction.

The luxury market could also be impacted because property taxes on your home will only be deductible up to $I0,000. Previously there was no limit on the amount of property tax you could deduct. Generally, in metro Denver. your home value has to be $ 1,000,000 or higher to have a property tax bill in excess of $10,000, so the average homeowner in metro Denver will not be affected by this change.

The one change that I think will affect the Denver market is the new holding period needed to receive $250,000 o f tax free gain on the sale of your home ($500,000 for a married couple). Under the old law you had to own your home 2 of the last 5 years to receive the tax free gain. The new rule requires you co-live in the home 5 of the lase 8 years. This change could keep homeowners from selling as they will need co-stay in their home longer or pay capital gains tax on any gains. High appreciation in the metro Denver market over the past 5 years has homeowners sitting on substantial gains. Homeowners will likely choose co-stay in their homes longer to reach the five year threshold instead of selling and paying tax. This change could slow the number of homes corning on the market.

Click here for a calculator to determine if your taxes will go up or down.