The president gathered a crowd outside the White House to celebrate the new tax plan last week. Republicans cheered the new order, but across New Jersey homeowners and prospective home buyers were pulling out their calculators and calling their realtors because the cap on state and local tax deductions, now $10,000, will mean a tax increase for many homeowners, and that will have an impact on the housing market.
“Essentially, their taxes just went up,” said realtor Robin Pierce. “Because if the max is $10,000 that you’re paying with pre-tax dollars, now, if you’re paying $14,000, in order to pay that additional $4,000, you have to make maybe $5,000 or a little bit more.”
And if you pay $14,000 in real estate taxes, you’re not even in the top five New Jersey towns for taxes. Take a look. If you live in Tavistock paying $31,000, you’ve just lost $21,000.
What impact will that have on property values? No one can say exactly, yet, because real estate markets are affected by more than real estate taxes. But an analysis by Moody’s Analytics paints a dark picture. You’ll notice that New Jersey has seven of the top 10 counties in the U.S. when it comes to losers in home prices across the country. Essex County tops the list with a 10.5 percent hit.
Essex County is where Larry Stanley sells real estate. He admits it’s still too early to tell what the impact will be, but he says the effects may be marginal.
“First of all, all real estate is local. Everything that happens is on a local level — what happened in this area last week, last month, last year,” he said. “We have to look at it and say, we’re going to sell houses the same way we did before. This might cut out a couple of people who weren’t going to enter a certain community. In Essex County, the rail towns will always be hot. If there’s a train station in your town, it’s a hot market.”
Yeah, when you could write off your full $23,000 real estate tax. But now, even with what realtors call a low-inventory market, or more buyers than sellers, the tax plan has thrown the market into a period of uncertainty.
“I was at a client’s house, and he lives in Haworth, and he doesn’t even know if purchasing a property now would be the right thing with this new tax bill. Maybe he should just continue to rent,” said Pierce. “It gives me a lot of concern. Now that could be good for investors and landlords.”
Who can pass on tax increases to tenants. But if you’re a one-family homeowner thinking that you maybe want to upgrade to something a little bigger or fancier, you may want to think again.