The new year has barely begun and already I am getting numerous inquiries about the new tax laws and how they impact a homeowner’s bottom line.
What the new tax overhaul does to homeowners in states like New York…
For those who don’t live in a high-tax state like New York, this may seem like hysteria run amok. But it is a very real issue for those living a very middle class lifestyle in expensive locations. Most are wedded to the area due to their jobs and endure high taxes and a high cost of living because employment opportunities are still location driven.
White Plains, for example is known for its (relatively) low taxes, but an average home in White Plains between 2000-3000 sf is around $15,000. This blasts through the new Trump tax bill’s maximum state and local tax deduction cap of $10,000 by $5,000. This means that state income taxes are completely non-deductible. Add this to the loss of the personal exemption and homeowners who rely on itemization on their Federal taxes to make their lives affordable are feeling like they are on the endangered species list. Homeowners in very high tax communities are literally losing $30-$50k in tax deductions. Although marginal rates have dropped, it all comes down to a balance of power between the impact of rate reduction vs the loss of tax deductions.
Renters will be hurt too…
For those who feel very smug because they are renting, you need to wipe that smile off your face and take notice. Once your landlord gets his new tax bill, your rent will be headed north. This is going to hurt you just as much as everyone else.
New York legislators punch back….
The ink was barely dry on the final bill when I started getting emails from my representatives in the state Assembly and Senate. Rest assured, they are not taking this lying down. This was followed up by Gov. Cuomo’s State of the State address where he assured New Yorkers that “we have not yet begun to fight…”
Naturally, NYS, will sue the federal government, as will the other 9 heavily impacted states (probably). How likely that is to succeed is dubious.
However, one of the primary weapons would be to restructure the tax code towards reliance on a payroll tax over the current emphasis on income tax. Payroll taxes are still deductible and further changes to the Federal tax code at this point would require 60 votes in the US Senate. There are complications to this idea that would have to addressed. However, this would mean that itemizers would not lose the state income tax deduction even if their property taxes hit the state and local tax deduction cap.
As for the our high property taxes…
The above may help with state taxes, but for those in municipalities where the average property tax bill is north of $25,000, the governor is saying that we have to get this under control. On this issue, he was short on specifics. These are local issues and far more difficult to resolve at the state level.
So for those who are in a panic - please stop panicking...
We haven’t seen the end of this and there are several fixes in the state government’s tool box that can help restore sanity. Will the taxes of many homeowners go up? Yes, probably. But it won’t erase the advantages of owning your own home.
For home buyers - take a second look at towns and cities with lower property taxes…
Some of these lower tax areas have been left behind in the great recovery Westchester county has been blessed with. Their prices have risen, but not as rapidly as some surrounding areas. Throughout the recovery, home buyers have focussed on the cute smaller towns and have turned their noses up at some of the smaller cities like New Rochelle and White Plains.
Start looking at these areas. For one thing, the new tax laws is setting these areas up to become ever more popular. Lower taxes are built into their economy. White Plains, in particular, has some great residential neighborhoods but due to its strong commercial tax base, property taxes are a good deal lower than some of the smaller towns.
Further Reading:
Tax Reform and Home Ownership in High-Tax States…
This One Weird Trick Lets Blue States Avoid Trump’s Tax Hike…
