How Tax Reform Really Affects Current and Prospective Homeowners and the Real Estate Professional

by Matthew Marks

I have been approached by many REALTOR® members recently who have asked me my thoughts on The Tax Cuts and Jobs Act and what it means for homeowners and real estate professionals. Well, many homeowners, homebuyers, real estate investors and members of the National Association of REALTORS® (NAR) may initially see a benefit from the reform. The final bill includes some big successes as a result of the REALTOR® effort. The exclusion for capital gains on the sale of a home was saved, and the like-kind exchange for real property was preserved. Many agents and brokers who earn income as independent contractors or from pass-through businesses will see a significant deduction on that business income.
There is, however, a large concern that this bill reduces the tax benefits of homeownership and will impact some markets more severely than others. In Pennsylvania, our markets are very different, and it’s hard to generalize about its effect on real estate. The changes have, however, affected NAR’s projection for the market with slower growth in home prices. In markets with higher-priced homes and higher taxes, the market may experience price declines as a result of the legislation’s new restrictions on mortgage interest and state and local taxes. Unfortunately, the tax code no longer provides strong incentives for most people to become homeowners since the increase in the standard deduction would greatly reduce the value of interest and tax deductions as tax incentives for homeownership. However, even with the changes in the code, being a homeowner still allows you to build wealth and equity- something renters cannot say.
Looking at some provisions that will impact homeowners the most, the tax code now sets a cap on the combined total of state and local property taxes and incomes or sales tax deductions at $10,000 instead of the full amount of those expenses. The new law reduces the amount of deductible mortgage debt on primary and secondary homes. These two items were priorities for NAR, the Pennsylvania Association of Realtors® and the Greater Lehigh Valley REALTORS® as we met with our Congressional delegation locally and in Washington, D.C. Initially, language in both Senate and House bills threatened to totally eliminate the SALT deduction and would reduce the Mortgage Interest Deduction (MID) to $500,000 for new homeowners. Thanks to the hard work of Realtors® and staff from across the country, we were able to make the change to the state and local tax and had MID bumped up to $750,000 (from the previous $1 million mark).
In the Lehigh Valley, the median sales price in 2017 was $185,000. According to Multiple Listing Service statistics, less than 3 percent of the available market – 63 homes – is listed with a price of $751,000 or above. Since the impact of the MID change will only be felt by property owners with mortgages above $750,000, I do not anticipate the change to the MID cap to have a significant impact on Lehigh Valley property owners.
Looking at the bigger picture and beyond the MID, and despite not getting all of the items we wanted in the final bill, I am optimistic that the tax changes will not negatively impact the housing markets in Carbon, Lehigh, and Northampton counties.
So, we have a general idea of how the tax changes will affect Pennsylvania and the Lehigh Valley, but how will they affect current and prospective homeowners and the real estate professional? The National Association of REALTORS® has a great summary of provisions that affect the aforementioned parties. They also provide examples that are for illustrative purposes and based on a preliminary reading of the final legislation as of December 20, 2017. Individuals should consult a tax professional about their own personal situation. You can find this information at

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