Those planning to take out a mortgage to purchase a new place to live in Westchester or Fairfield counties may have other tax-related factors to consider when hunting in the housing market.
Republicans in the House of Representatives this month rolled out their tax-overhaul bill, which would aim to simplify the tax code by slashing itemized deductions and the number of tax brackets. Included in the GOP’s Tax Cuts and Jobs Act is a provision that would cap the mortgage interest deduction at $500,000 of a home’s value, slashing in half the current cap of $1 million.
Though the proposed change would not impact existing homeowners, it would affect those who plan to apply for a new mortgage.
“If I’m buying an $800,000 house and now I can only deduct $500,000 of my mortgage, I’ve got $300,000 that I can’t deduct,” said Craig Scher, a broker with CS Realty & Relocation Services Inc. in Harrison, “and I’m going to have to factor that into my buying a house.”Because the median home price in the U.S. is roughly $202,000, the tax change could have a limited effect on the nation’s overall housing market. However, that change could be more pronounced in Westchester County where the median sale price for a single-family home sits at $680,000.
“It’s going to affect everybody in the $500,000 to $1 million price range, and that’s Westchester County,” said Scher. “That’s the meat and potatoes. That’s the spot.”
The effect could be similar in Fairfield County, which saw a median home price of $410,000 for the third quarter.
“In lower Fairfield, that can take people out of the equation, basically,” Michael Barbaro, president of the Connecticut Association of Realtors, said of the impact the proposed tax changes could have on homebuying here.
For Barbaro, another significant item in the Republican plan is a $10,000 cap on deductions of state and local property taxes.
“In some states, it isn’t that significant, but in Connecticut, if you eliminated that deduction, your taxable income goes up significantly,” Barbaro said. “I think Connecticut is a casualty of war here.”
Barbaro said that tax change will affect decisions made by any new buyer in the Fairfield County market.
“It’s pushing your lending ability down,” he said. “If you take that property tax deduction away from them, their monthly buying power goes down, and it’s going to force people into New Haven County or it forces them into lower-priced homes in that market.”
Fairfield is one of nine counties in the country where the average annual property tax tops $10,000. Others include Rockland and Nassau counties in New York; Essex, Bergen, Union and Morris counties in New Jersey; and California’s Marin County.
Topping that list is Westchester, the county with the highest annual property tax in the country, where residents pay an average of $16,500 per year.
“For Westchester County, for our prices, it will definitely negatively impact the sales,” said Scher. “To what extent, we won’t know until that happens, but you can definitely say the effect won’t be good.”
Mark Seiden, broker-owner of Mark Seiden Real Estate Team in Briarcliff Manor, said the changes included in the GOP’s plan have the potential to be “pretty terrible” for the area.
“The big challenge we have with this is we really feel that housing pretty much drives the economy,” he said. “If you start hurting or stifling the housing market, you really could be hurting the economy.”
Still, Seiden said, the lure of living in Westchester County and other areas surrounding New York City could prove powerful enough to negate the tax law changes.
“People are used to paying whatever they need to pay to be here,” he said, “because if people were not willing to pay to be here, why in God’s green earth would anyone pay the property taxes that people have to pay in Westchester?”
New York State Association of Realtors CEO Duncan R. MacKenzie said he thinks the new plan would have a negative impact on the state’s homeowners.
“It will lessen the value of the property tax deduction and it cuts a host of other key housing-related tax incentives,” he said.
Those cuts include restrictions on the capital gains exemption homeowners use today when they sell their home.
“This legislation closely tracks with the House Republican Blueprint for tax reform, which threatens home values and takes money straight from the pockets of homeowners,” National Association of Realtors President William E. Brown said in a statement. Brown said the bill outlines a less favorable deal than what homeowners have now and hampers the homeownership incentive.
“Tax hikes and falling home prices are a one-two punch that homeowners simply can’t afford,” he said, adding that the National Association of Realtors’ 1.3 million members “cannot support a bill that takes homeownership off the table for millions of middle-class families.”
Despite a negative impact on certain homebuyers and owners, Barbaro thinks the legislation still could move forward.
“I personally think it will pass,” he said. “I think in general the country and voters have an appetite for a simpler tax structure,” and eliminating deductions is one way to achieve that. “I think we’re lucky to keep any portion of a mortgage deduction in the equation.”