Saturday, February 10, 2018

The 2018 federal tax changes and Portland real estate

It was hard to miss the changes to federal tax code that were quickly enacted in December 2017.  Previous tax overhauls entailed months of committee work and hearings, which vetted out most of the inconsistencies and grey areas.  The December 2017 tax changes left more room for interpretation and fine tuning.

I don't expect to see much effect on Portland real estate as a result of the changes.

 Limiting the property tax deduction to $10,000 per year on a personal residence won't hit many of us. While we do see some property taxes over $10,000, that's pretty high value house.

The interest on home equity loans and lines of credit will no longer be deductible.  But, it is thought that if such loans are used to invest in real estate, including remodeling or adding to your existing property), that interest may be deductible  This is one of the grey areas in which we may see some rule making in the months to come.  In any case, I'm not sure that lack of interest deduction will change behavior.  And if home equity interest IS deductible for real estate (and improvement) investing, it really won't change behavior. 

I talk with many clients deciding whether to add on/remodel their existing home, or move.  My advice is always this: if you like where you are,and the finished product will be the home you want, stay and remodel.  If you want a different area, or even with work, your house won't be what you want, consider selling and moving.  Will the lack of deductibility of the home equity to do the work change this?  I doubt it.

As we saw, the tax changes seemed to hit hardest, those states with high income tax; of which Oregon is one.  High net worth folks, especially moving toward retirement, tend to avoid such states.  We may then, see fewer very wealthy folks moving here, or choosing to stay here. 

So maybe, with the combination of the property tax deduction limit at $10,000 and the hit to states with high income tax, we might see that upper end of the real estate market soften a bit.

Certainly, there were other changes to the tax code that will change household financial pictures.   So much of this depends on your specific financial situation.  As far as our local real estate market, I don't anticipate much effect. 

If you have questions about your specific real estate situation, get in touch.  I'd be glad to talk with you.   503-312-8038