Good news overall for real estate and mortgage pros in Georgia
Change is never easy and we can certainly debate the tax law reform on many levels but for our industry and specifically in Georgia for real estate we believe everything will be okay!
Here, let’s not try to provide a comprehensive analysis of the changes to our IRC but rather focus on those key areas which impact home buying and lending decisions.
Capital Gains Stay the same
One big concern and misunderstanding surrounded a major benefit to homeowner’s on under the tax reform in 2018 –
Previously an owner could exclude Capital Gains on their primary residence if they lived their 2 out of the last 5 years. There was talk and I was concerned they were going to make it 5 out of the last 8 years. While not catastrophic it would have done nothing but hurt our industry (even if it were a minimal impact).
For some this exclusion is a reason to move every 2-5 years. It would have more than doubled the minimum from 2 to 5 years resulting in fewer sales.
Note there was not change to the exclusion of up to $250,000 for individual and $500,000 for a married couple filing jointly.
Mortgage Interest goes down from $1,000,000 to $750,000 but…
We’re not San Diego, Seattle, Washington, Boston, NY etc. where the home prices for so many are well above the $750,000 mortgage limit. In the Atlanta metro counties, where the median price of a home is $300,000 or less in most zip codes, a $750,000 loan goes a long way for the average homebuyer.
Psychologically some higher end customers may change their buying habits but I doubt it. Are you really going to avoid buying that $1.2M home for example because your 80% loan of $960,000 leaves you unable to write off the last $210,000 of interest payment. Of course some might but most will recognize that the lower overall brackets leave them quite capable of making their dream home come true. Finally on this matter, keep in mind the limit was already $1M and there were still the wealthy who were not deterred.
One thing to keep in mind and do some research on is home equity lines and junior debt. It’s my understanding from our research that this type of debt may not allow for interest deduction. So for you loan officer who like to do the piggy-back financing, make 100% sure you are not hurting your borrowers.
Income taxes and property taxes will be the one area to really watch.
Georgia does have both a state income tax and property taxes as we all know. Compared to many states our taxes are low but with a $10,000 cap on these deductions, expect some of us to be disappointed how quickly we hit the limit. If there is any good news, the bump in the standard deductions and the lower tax rates should hopefully mean we don’t get pinched to badly. However, certain states with high tax brackets such as California 13.8% and Oregon 9.9% could really feel the effect. We all know that home values and property taxes are not low in these areas either.
Honorable mention item:
Moving expenses will generally no longer be deductible (though apparently there will be some exceptions for those in the military) if the new workplace is at least 50 miles away from the old home but I just can’t see people electing to be stuck in home far from a new job because they don’t want to pay for moving expenses in the event their employer won’t foot the bill.
So our industry (at least in Metro-Atlanta) it seems will dodge a bullet with changes to the Tax Code. Also, with the strength of the local and national economy, recognition of Atlanta as an attractive and desirable destination for employers to relocate to and those seeking employment, low interest rates still in place and finally reasonable compared to other big cities in the U.S. get ready to have your best year to date in ’18.
Not intended to substitute for consulting your tax accountant.