For years, homeowners have been benefiting from state and federal tax deductions. However, due to the sweeping tax legislation passed late in 2017, you may have heard some economists claiming home ownership has become less attractive and home values will drop in 2018. Reasons cited include:
- With the standard deduction increasing, less people will itemize deductions. The standard deduction for taxpayers doubles under the new law. In many cases, this change will lead taxpayers to take the standard deduction rather than itemizing, which technically reduces the tax-related benefits of owning a home.
- A cap on the state and local deductions could make buying less attractive. Homeowners may itemize deductions of up to $10,000 for the total payment of state and local property taxes. Previously, all state and local property taxes were deductible.
- A lower threshold on the mortgage interest deduction, which could discourage high-end homebuyers. The new tax law caps the mortgage interest deduction to $750,000 down from $1 million.
However, the National Association of Realtors (NAR) recently conducted their own analysis to determine the impact the new tax code may have on home values. According to the NAR, the new tax code will have much less of an impact than is being reported. They are projecting home values to increase 1.9% in 2018. The NAR also states that the majority of homeowners won’t be affected by the $10,000 cap on state and local property taxes or lowering the threshold on mortgage interest deduction.
In addition, CoreLogic released its Home Price Insights Report. In the report, they forecast a 4.2% increase in residential real estate prices nationally with an increase in home values in 49 out of 50 states.
The current state of the housing market will also influence home prices moving forward. Prices are shaped by supply and demand. In the past five years, housing inventory has fallen across the country and as a result, home prices will continue to rise.
For most potential homeowners, the decision to buy won’t be affected by changes to the tax code. Buyers still need to weigh the other pros for homeownership: building wealth through equity, appreciation in value over time and pride in ownership.
Even if you aren’t thinking about selling, you should occasionally review the value of your biggest asset. Just like you check in on your retirement accounts, you should also evaluate your home value.
We’re here to help you assess your current home value. Call The Garatoni Group today at 612-821-7456 for a FREE market analysis.