Nobody likes tax season (unless, of course, you’re a tax accountant), and the new tax plan may make this stressful time even more confusing. We’ve broken down the new plan to show you how it will affect you and the real estate market in the coming years. What are the expectations, and how will they play out in reality? As always, when in doubt, consult your financial advisor for more specific information.
Expectation: Your income tax rate will change.
Reality: Most tax brackets will see cuts in their income tax rates under this new plan. Tax rates for 2017 are as follows:
- 10%: $0-$9,325 (Single) / $0-$18,650 (Married/Joint)
- 15%: $9,326-$37,950 (Single) / $18,651-$75,900 (Married/Joint)
- 25%: $37,951-$91,900 (Single) / $75,901-$153,100 (Married/Joint)
- 28%: $91,901-$191,650 (Single) / $153,101-$233,350 (Married/Joint)
- 33%: $191,651-$416,700 (Single) / $233,351-$416,700 (Married/Joint)
- 35%: $416,701-$418,400 (Single) / $416,701-$470,700 (Married/Joint)
- 39.6%: $418,401+ (Single) / $470,701+ (Married/Joint)
The tax rates in 2018 will change to:
- 10%: $0-$9,525 (Single) / $0-$19,050 (Married/Joint)
- 12%: $9,526-$38,700 (Single) / $19,051-$77,400 (Married/Joint)
- 22%: $38,701-$82,500 (Single) / $77,401-$165,000 (Married/Joint)
- 24%: $82,501-$157,500 (Single) / $165,001-$315,000 (Married/Joint)
- 32%: $157,501-$200,000 (Single) / $315,001-$400,000 (Married/Joint)
- 35%: $200,001-$500,000 (Single) / $400,001-$600,000 (Married/Joint)
- 37%: $500,001+ (Single) / $600,001+ (Married/Joint)
Expectation: Real estate investors will benefit from the plan.
Reality: Real estate investors can now take advantage of the 20 percent deduction offered to pass-through companies. Instead of being taxed at both an individual and corporate rate, investors will only be taxed at the individual level. This could mean more landlords hold onto their properties instead of selling, and more builders opting to construct apartments and office buildings instead of single-family homes.
Expectation: Real estate sales could take a hit.
Reality: The new tax package includes a cap for deducting property taxes and state and local income taxes at $10,000. This means owners in high-tax states like New Jersey and New York may actually see their taxes increase. In 2015, the average deduction in New York was more than $22,000.
In addition, the new plan has made changes to the mortgage interest deduction. For 2017, homeowners who itemize can deduct interest payments on mortgages up to $1 million. For new homeowners, this will be capped at mortgages up to $750,000. The decrease is not retroactive, so current owners will not be affected. Also be aware that the new tax plan has doubled the standard deduction for both single and married/joint filers, which means that far fewer people will itemize their taxes. The mortgage interest deduction is only available to those who itemize. This could lead to lower housing prices.
Expectation: The new tax plan will grow the economy.
Reality: As originally reported by NPR, approximately half of all economists polled by the University of Chicago’s Booth School of Business believe that the new tax plan will not lead to accelerated growth in the economy. In fact, only two percent of those polled believed that it would. Most economists seemed to believe that the economy would see an initial boost, but that lasting growth was not sustainable. Some of the reasons that the benefits might not be long-term include a rise in interest rates down the line and the already strong job and stock markets.
If you’d like more information about buying, selling and renting real estate in Manhattan please click here or call 646-759-9675. The agents at Platinum Properties are here to answer your questions and help you every step of the way.