Timothy Hill, Gala, Benefit, Ranch, Riverhead

Hamptons Life

Dec 7, 2017 5:46 PMPublication: The East Hampton Press & The Southampton Press

Federal Tax Bill Poised To Reduce Tax Code's Homeownership Incentives

Dec 11, 2017 9:48 AM

Real estate professionals on the East End have been closely watching the Republican tax bill evolve on Capitol Hill, where home buying incentives that are currently part of the federal tax code are on the chopping block.

Of particular interest to the industry—and to current and potential homeowners—are home mortgage interest deductions and state and local tax deductions. The existing tax code allows homeowners to deduct, on their federal tax return, the interest paid on up to $1 million in mortgage debt. Taxpayers who itemize their deductions also can claim a deduction for their local property taxes, which can be a sizable amount in some communities.

These deductions, which can reduce federal income tax bills by hundreds or thousands of dollars for homeowners in states with a high cost of living, have been credited with making homeownership more attainable. In Suffolk County, according to State Comptroller Thomas DiNapoli, more than 40 percent of taxpayers itemize their deductions.

Two conflicting versions of the tax bill—the House of Representatives version and the Senate version—passed their respective chambers of Congress. Both versions place a new cap of $10,000 on the amount that can be claimed as a property tax deduction.

The House bill preserves the mortgage interest deduction for existing mortgages but limits deductions on newly purchased homes to the interest on the first $500,000 of the loan balance. Meanwhile, the Senate version leaves the existing mortgage interest deduction fully intact.

A conference committee is currently working to reconcile the versions and come back with a singular bill that can pass both chambers by a simple majority and then be sent to President Donald Trump’s desk for his signature.

Last month, regarding the House version of the legislation, the Long Island Board of Realtors issued a press release that stated “the bill represents a tax increase on middle-class homeowners,” and predicted falling home prices.

“This is the most impactful federal issue affecting real estate that we have faced in a generation,” said LIBOR President David Legaz. “Realtors believe in the promise of lower tax rates, but this bill is nowhere near as good a deal as the one middle-class homeowners get under current law. Tax hikes and falling home prices are a one-two punch that homeowners simply can’t afford.”

Mr. Legaz noted that America’s homeownership rate is hovering near a 50-year low, and he asserted that eliminating or nullifying the incentive for homeownership could push out of reach the wealth-building potential homeownership provides.

U.S. Representative Lee Zeldin of Shirley, whose district includes the East End, was among the 13 Republican congressmen who voted against their own party’s tax bill.

Among his reasons for voting no, Mr. Zeldin cited the bill’s elimination of state and local tax deductions. In addition to capping the property tax deduction, both versions eliminate deductions for state income tax.

Judi A. Desiderio, the chief executive officer of Town & Country Real Estate, said there is no doubt that if the proposed tax changes are approved, they will negatively impact real estate sales on both U.S. coasts. “The price tags and taxes are greatest in these regions,” she noted.

“Homeownership is the American Dream,” Ms. Desiderio added. “It’s important to do what we can to make it a reality for as many citizens as possible.

“For the average person, they will find the proposed parameters digestible. But for the high earners with high tax bills, it will negatively impact values—and, keep in mind, while the coastal areas may not be the greatest head count, they contribute the most to taxes of all kinds.”

Compass’s senior managing director for Bridgehampton and Southampton, Joseph De Sane, is predicting that, in his area, there will not be a big effect on cash transactions. “Since many purchases in the Hamptons are secondary home purchases made with cash or existing wealth, I don’t anticipate any sweeping changes in purchasing behavior,” he said.

However, his assessment of transactions via mortgages differed.

He said lowering the ceiling on the mortgage interest deduction from $1 million to $500,000 will remove the “perk” of writing off interest on a half million dollars of debt, and will affect the cost of homeownership.

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Oh poor David and the rest of his Real Estate brokers. Sorry you wasted all your money on Hillary Clinton campaign. And the last place anyone should look for tax advice is from the Realtor Board..
By Tomjulie (43), Hampton Bays on Dec 11, 17 10:36 AM
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