Tax Cuts and Jobs Act of 2017: A “Jumbo” Problem for Real Estate?

What the Tax Cuts and Jobs Act of 2017 Means for Northern and South Florida Real Estate

As we stated in our previous blog post, the new administration has been eager to execute new changes to the tax code. With the tax bill now passed, what changes will be implemented and how will they affect the residential real estate market?

A “High-end” Implication

The tax bill reduces the mortgage interest deduction cap from one million dollars to $750,000. The new cap only applies to loans made after November 2, 2017, protecting existing homeowners. This could affect homeowners in expensive markets, including Miami, where selling one’s home would mean losing a portion of the mortgage interest deduction where the new mortgage may very well be above $750,000.

As a result of the new cap for mortgage interest deductions, jumbo mortgages are expected to slow. Jumbo mortgages constitute loans above $424,100 and are too big to be sold to Fannie Mae and Freddie Mac. Last year, Jumbo mortgages had their highest dollar volume since 2006. This change, in turn, will hurt the high-end residential real estate market in states that have higher housing prices, such as New York and California, where homebuyers are forced to succumb to the skyrocketing housing rates. Manhattan and San Francisco, for example, have over 80% of their mortgages at more than $500,000.

Property Taxes also a Factor

Another important aspect of the Tax Cuts and Jobs Act of 2017 is that it only allows a maximum deduction of $10,000 in state and local taxes, including property taxes. This is a blow to homeowners in high-tax states such as New York and New Jersey. In 2016, roughly 3.7 million of U.S. households paid more than $10,000 a year in property taxes. However, for states like Florida that pay no state income tax, the tax bill should have less of a negative impact on those at the “lower-end” of housing market.

And finally, with all that frigid weather up north, it may be time to consider taking advantage of Florida’s warmer weather and friendlier tax environment by using a real estate attorney and purchasing property here!

From the trenches,

Roy Oppenheim