The new tax bill limits state and property tax deductions to $10,000 and mortgage interest deduction on mortgages down to $750,000. This could negatively impact appreciation of RE in California.
1) How is this impacting your strategy?
2) Are you adjusting your portfolio? If so, how?
Meh. I'm not all that worried about it. :)
I think on the margin, it will have an effect, but it doesn't pose a systemic risk to the overall CA market.
Here's my thinking: Many people who are buying the $1M+ homes are already high-income earners, and W-2 at that. Even before the recent changes, the mortgage deduction starts phasing out at around $250K and is completely gone at $450K for a married couple (don't quote me on those thresholds, but you get the point.)
That means for couples making more than $450K, there's zero difference for them. And even for those middling-high income earners (say 250K), they're not targeting homes that much above the $1M mark any ways and they would only lose an increment of their previous deduction.
In terms of adjusting my portfolio: no. I never thought it was wise to hold $1M+ SFH in my portfolio even before the change. I would much rather have a $1M multi-family, which shouldn't be effected as the end-buyer is a fellow investor, not an end-user.
I'd be interested in hearing other people's thoughts as well!
Hope that helps
I don’t see this having a large impact on the value of California real estate, outside of possible short-term fluctuations. It had been capped at $1 million (effectively $1.1 million), and our state doesn’t have any shortage of houses worth over $1 million.
At the end of the day, home buyers are going to purchase emotionally (based on how they feel about the house), rather than as an investment where they run all the numbers. Property taxes and mortgage interest deductions will be an afterthought for them.
Wel said Brian . Keen to have other way in.
Agreed with above... SFR home buyers for their personal resi's are not investors .. they don't crunch numbers.. they look at kitchens bathrooms paint colors school districts etc..
5 to 10k difference in deductions is not going to cause them not to buy the home that moma wants.. flat guarantee that..
now were I do think it will make a difference.. is with some that are mobile. or work from home and can work anywhere and are empty nesters.. I am describing myself LOL... for me I will still invest in OR and CA for short term gains love those but majority of my income comes from either no tax states or states with tax's 1/3 of CA and OR. .. but will be moving personal resi to NV.. as being self employed and totally harpooned on tax's not being able to write off state income tax is huge for me.. its over a 50k a year swing to the negative for me personally.. so to that end what I save there will pay for my townhouse I just bought in 6 years.. so I guess it is affecting one person :)
but if I was living like I used to in the Bay area and still engaged there I would not even think twice about it just adjust.. and investors its simply does not affect.. Might affect some homebuilders like myself a little bit.. but most of what I build and sell is under 700k total sales price so still not affected on the mortgage deduction and most of the tax's are at 10k or under.. So I am good.
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