Market Outlook and Tax Bill Implications!
Lets look at the overall housing forecast for 2018 first. Existing home sales are projected to increase nationwide by 3.7 % and home prices are expected to appreciate by 4.9% in 2018 according to the National Association of Realtors forecast. While forecasting the real estate market is a lot like forecasting the weather in any other state except Arizona, we believe these statistics to be reliable and for the most part accurate. A slight increase in interest rates and growing inventory point to a slight slowing of the market but here in Arizona this may mean the market simply slows from white hot to red hot despite our current seasonal slow down! As inventory grows, the services of a traditional real estate broker become even more important to maximize sales price and reduce time on the market as well as eliminating those pesky little mistakes. We know a good one!
That being said, all real estate is local just like politics. In Avondale, Zillow predicts a 3.4% increase over the next year after a whopping 8.3% increase over the last year. The average list price per square foot in Avondale is currently $118 per square foot. In Litchfield Park, Zillow predicts a 2.6% increase over the next year after a 5.3% increase over the last year. The average list price per square foot in Litchfield Park is currently $133 per square foot.
Tax Bill Implications!
Admittedly, it is hard to weed through the hype of all the partisan entities including the lobbying efforts of the National Association of Realtors! I will do my best to give you straight answers based on the actual law.
Mortgage Interest Deduction (MID)
The mortgage interest deduction remains largely unchanged with a couple of exceptions. The new law caps the limit on deductible mortgage debt at $750,000 for loans taken out after Dec. 14. (Loans made before that date can continue to deduct interest on mortgage debt up to $1 million.) Homeowners can refinance mortgage debts that existed before Dec. 14 up to $1 million and still deduct the interest as long as the new loan does not exceed the amount refinanced. The interest on a home-equity loan can be deducted as long as the proceeds are used to substantially improve the home. Mortgage interest on second homes can be deducted but is subject to the $750,000 limit This slight change is also affected by the change in the standard deduction meaning that fewer people will utilize the deduction because their amount of interest will not exceed the standard deduction amount which has been raised to $24,000 for joint filers and $12,000 for single filers while eliminating the personal exemption altogether.
Capital Gains Exemption
This part of the law remains the same. You can sell your personal residence and not claim the net profit up to $250,000 for single filers and $500,000 for joint filers. The caveat here is that you still have to have lived in the home for 2 of the past five years and can only complete such a sale once every 2 years.
Property and State Tax Deductibility
One of the benefits of living in Arizona as opposed to say California or New York is that both our property taxes and state taxes are relatively low (I said relatively). The new tax laws cap the amount that can be deducted for state and local taxes combined with property taxes at $10,000. This may seem to be a dramatic change but let’s explore an actual example of how this would work. In Avondale and Litchfield Park, we will use a property tax amount of $2500. Yours may be slightly higher but most homeowners have a property tax liability of less than this in our area. That leaves an amount available to deduct of $7500. According to the 2017 Arizona tax table, that would mean that this would not adversely affect a taxpayer unless their adjusted gross income was over $176,887 ($7500 divided by 4.24%). Using the 2018 brackets this amount would be $165, 198 ($7500 divided by 4.54%). While this provision will affect some homeowners in the area, it may be offset by the differences in bracket rates or standard deductions.
A great deal has been made about this provision affecting real estate investors’ ability to deduct property taxes. This provision would only apply to the deduction on your primary residence. All other rental expenses would still be deductible as a rental property expense against the income the property produces.
1031 Tax Free Exchanges
Nothing has changed on the 1031 front. We are capable of doing these on like-kind investments in real estate (this means investment real estate for investment real estate not shares to real estate investment)
While I am not advocating for or against the provisions of the law, I just don’t see enough changes with regard to real estate to have any net effect on our market especially here in Arizona.
If you need to sell your personal home, investment property or purchase a new or resale home anywhere in the valley, call the proven, reliable and statistically top performing Al Gage Team!
623.536.8200 or firstname.lastname@example.org