What the new tax law means for selling a New Jersey home
The New Jersey housing market continues to make a slow, steady comeback from a drastic drop during the Great Recession, but some are concerned new tax laws that were passed last month could put a damper on things.
“There will be both short-term and long-term effects,” said Jeff Otteau, the president of the Otteau Valuation Group and an expert on the Garden State housing market.
He said for the next couple of months, there’s likely to be a significant slowdown in home sales in New Jersey, as the public tries to sort out what the new tax laws mean. Moody's is also expecting the limits on property tax deductions to hurt home values.
After that, however, Otteau expects the market to pick up, when many potential homebuyers find the new laws could actually benefit them.
He said while property and income tax deductions have been capped at $10,000, “there have been three offsetting changes that more than account for the loss of deductibility of those taxes.”
Otteau said those include a bigger standard deduction, a doubling of the child tax credit, “and thirdly, the tax brackets have all been reduced in terms of what rate taxes will be based upon.”
The result of these changes, Otteau said, is many couples earning roughly $100,000 per year, living in homes worth roughly $350,000 and paying about $7,000 per year in taxes, will wind up paying less in taxes than they used to.
“It will take a while for everyone to sort of figure that out, and when they’re going to figure that out is when they’re talking to their accountants over the next couple of months, as they file their 2017 taxes," he said.
Otteau said home ownership used to provide many New Jerseyans with an exclusive beneficial tax deduction — but under the new tax laws that’s no longer the case.
“Households that are renters are also entitled, as a married couple, to a $24,000 standard deduction, and this is going to remove some of the incentive to buy a home," he said.
In other words, the larger standard deduction will probably have a bit of a negative effect on the New Jersey housing market.
“What’s going to happen over time is that the increase in house prices that we see will be a little less that what we would have seen otherwise,” Otteau said. “That’s because some renters are going to make the decision to continue to be renters because they don’t need to buy a home to realize the tax benefits.”
He was quick to add, however, “tax deductions are only one of the reasons people buy homes, and it’s one of the less significant reasons that people buy homes.”
“The housing market will go forward. The majority of would-be homebuyers will still decide to buy houses, but we’re likely to see a slower rise in house prices," he said.
You can contact reporter David Matthau at David.Matthau@townsquaremedia.com.
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