Will the New Tax Plan Affect Real Estate?

By Ramsey Judah

Photographer: Andrew Harrer/Bloomberg via Getty Images

Let’s be honest, the Republican tax plan that was written in two weeks was not actually written in two weeks. The special interest groups behind the tax plan push serve the mega rich in this country and this plan has been written for years. They just simply got the chance to implement and took it.

The super rich finally won and will be highly benefited at the expense of the masses. So how will this affect real estate, especially here in California?

Well, if you’re a real estate investor who buys property to rent out, you are going to be incredibly happy. The tax plan substantially benefits businesses and real estate investment is considered a business. The corporate tax cut from 38% to 21% will add almost 20% into the pockets of landlords who will most likely setup pass-through corporations and reap their rewards.

But for the average homeowner across the country, what was once considered a great investment may quickly become an expensive venture.

Homeowners in the past were able to deduct the mortgage interest from their income taxes. That is no longer an option.

They were also able to deduct the property taxes they pay every year from their income taxes as well. But that is no longer the case either. Now the property tax deduction and the deduction for local and state income taxes are combined to a limit of $10,000.

For example, if you earn a high income and have to pay state and local incomes taxes in the amount of $10,000 or more, you will not be able deduct any property taxes from your income taxes because your $10,000 deduction will be maxed out.

The only real benefit left for homeowners will be the rise in home value appreciation. But it is yet unknown exactly what the tax will do to buyers in the real estate market.

The market in California is currently healthy, but if costs go up for prospective buyers due to their disappearing deductions, it may cause a slow-down effect. And with real estate being one of the foundations of the US economy, a slow-down will surely bring the country down with it.

There is still a lot to decipher from the new tax plan and how it will affect us all. It is just incredibly sad to see homeownership, one of the safeguards of wealth in society, yet even more unattainable for many people in the future.

Ramsey Judah is a broker with The Judah Group and can be reached at ramsey@TheJudahGroup.com or @RamseyJudah on Twitter and Instagram

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