2018 GOP Tax Reform vs. How this impacts Real Estate Prices

Note: This is not tax advice. Do your own Due Diligence. I don't discuss politics. Consult a tax professional for any of your questions. This is purely my interpretation and my thoughts with regard to the 2018 GOP Tax Reform with how it relates to real estate. Thanks for watching! Snapchat/Instagram: GPStephan

Notable Changes:

The mortgage interest deduction. It was previously capped at $1,000,000, which means you can deduct the interest on the first $1,000,000 of your mortgage. This deduction is now lowered to $750,000 for any new home purchases. This means that any interest you pay above a $750,000 is not tax deductible.

For most of the US, this doesn’t make a difference at all. The median US home price is about $258,000. This impacts high cost of living areas with home prices above $800,000 or so, but even that impact is very minimal in terms of an interest deduction…and most likely that person will end up saving money in other areas to make up for that deduction.

The next big change is the limit on property tax and state deductions (SALT). In relation to real estate exclusively, this means that your property tax deduction is capped at $10,000 per year, instead of being unlimited like it was prior. And like I said, this doesn’t impact the majority of the United States where housing is all under $800,000.

The next is that it appears as though home equity and HELOC loans are not tax deductible on a primary residence.

A positive for real estate is a shortened depreciation schedule. In commercial real estate, you used to be able to depreciate the property over 39 years, and in residential it’s 27.5 years. This was shortened to 25 years for both.

They didn’t get rid of the provision of capital gains exclusion on a primary residence. If you’ve lived in your house for 2 of the last 5 years, you can exclude paying taxes on the first $250,000 if you’re single and $500,000 if you’re married.

For rental properties, this makes them MUCH more attractive in comparison to buying a primary residence, but ONLY if that primary residence is over $850,000 or so. If your house is worth under about $850,000 or so, the tax plan really has no affect on you, other than not deducting a HELOC or home equity line of credit. For rental properties, nothing has changed and you can now depreciate them 2.5 years faster than before.

For a home owner buying a home above $1 million dollars or so, it got more expensive. The property tax deduction was a great deduction for people in the high price range. However, my thought is that even though housing becomes a little more expensive, I don’t think people in this price point will be deterred from buying because of a marginal savings in whatever they were writing off.

Frankly, depending on the industry, you should be overall saving more money, so this should entirely balance out, if not come in your favor. So those are my thoughts. I don’t want to turn this into a political video, I stay out of that, I’m not picking sides, but it is what it is and I’ll report on the changes and what I think this means for prices. Also, keep in mind I’m not a tax consultant and you’ll need to consult with a specialist since taxes are such a personal matter. This is not legal or tax advice. Do your own due diligence.

For business inquiries or one-on-one real estate investing/real estate agent consulting or coaching, you can reach me at GrahamStephanBusiness@gmail.com

Suggested reading:

The Millionaire Real Estate Agent

Your money or your life

The Millionaire Real Estate Investor

How to Win Friends and Influence People

Think and grow rich

Awaken the giant within

The Book on Rental Property Investing

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