For many of us, being able to deduct the interest we pay on our mortgage is a big deal. And for many buyers, it is the difference between renting and going ahead with a purchase of their own home. But President Trump is proposing a major change to the existing income tax program. And, under his new proposed tax plan, there may be major changes that could effect the real estate market.
Currently, homeowners can deduct up to $1 million in interest debt on a mortgage. Also deductable is up to $100,000 interest on a home equity loan. The way it looks is that, although the new tax plan that is being proposed will not remove these deductions, it could change the way theses deductions are applied. And the changes could make this deduction irrelevant to most American taxpayers.
The proposed changes would double the standard tax deduction. It would also remove deductions for state and local taxes, which include your real estate taxes. And in states with high property taxes, like New Jersey, we could come out on the short end of the stick. One company did an analysis that showed that currently a home worth about $305,000 or more has a tax bill that would warrant the tax deduction. Under the new proposed plan, that threshold would rise to homes worth in excess of $801,000. In many states the average homeowner would benefit from doubling the standard deduction. But I only worry about us here in New Jersey.
Besides the extra costs to most homeowners, the real estate market could see a sharp decrease in activity, or possibly a decrease in sale prices to make up for the changes.
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