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How Will Tax Reform Impact the Real Estate Industry?

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A post from our Loan Officer, Dorothy Chiappe, who has over 30 years experience in the industry. 

Friends and Clients —

Have you heard the news? The new administration is looking to revamp the tax code — in a way that affects the long-standing mortgage interest deduction (MID).

Some people have concerns that this might negatively impact home sales and drive down home values. I believe these updates to the new tax code will do just the opposite.

Allow me to give you a bit of background. Under the current system, you have the option to include the interest you pay on your mortgage in your itemized tax deductions. Should the itemized tax deductions turn out to be greater than your standard deduction, you will save more on your taxes.

Currently about 20% of homeowners who have a mortgage take advantage of the MID which leads to an average savings of $2,000 in taxes. Under the proposed new tax plan, the standard tax deduction would almost double. For example, the standard deduction for a married couple would go from $12,600 to $24,000. If this happens, an estimated 84% of people who are currently opting to itemize taxes would simply go for the standard deduction. This is the part that has some people worried. After all, if people don’t take advantage of the MID, won’t this decrease the value of owning a home?

Here are two reasons why that won’t happen:

First, most people do NOT buy a home in order to save on taxes. The National Housing Survey confirms this fact. The top reasons why people buy a home include wanting to find a good place to raise children, owning a physical structure where you and your family feel safe, allowing for more space for your family, and gaining the right to make renovations to your living space…

…but there’s no mention of saving on taxes. The seasoned Realtors at Provident Partners agree. Clients aren’t buying homes for a tax break.

Second, overall taxes will actually be lower under the proposed new plan. Traditional estimates of the impact of the MID assume other taxes would stay the same. If this is the case, and the deduction goes away, home prices could indeed suffer to an extent. However, under the proposed new plan, the tax burden will be lessened in total.

Instead of losing money due to not claiming the MID, people will be gaining money by having to pay less in taxes altogether. With more disposable income, people will have an expanded budget and will likely spend more on a home. This will drive up sales as well as prices.

The fact is, current home prices around Phoenix keep increasing — not because of tax breaks, but because of tight supply.

The market is getting stronger and the best time to buy is NOW. Give me a call at (480) 314-1414 if you are ready to make your move.

Your Arizona Licensed Loan Officer,

Dorothy Chiappe

7 Reasons to Buy Instead of Rent

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7 Reasons to Buy Instead of Rent

own-rent“Buy a home! Buy a home!” Like most first-time home buyers you’ve heard this advice more than once, from friends, family members, and even coworkers. You may be wondering…Is buying a home the right decision for you? It’s okay to have your doubts, so take a deep breath and relax. The more you know about the benefits of purchasing your own home the less scary the decision will seem. Here are 7 important reasons why you should take the leap and buy a home.

  1. Tax breaks for homeowners – U.S. Tax Code allows homeowners to deduct the following: interest you pay on your mortgage, your property taxes, and several closings costs involved in buying a home.
  1. Appreciation – Over the long term most home values will see a rise values. The appreciation of a home will increase depending on several factors. Location is important for access to services like schools, businesses, hospitals, etc. Other economic factors, such as the overall growth of your city, contribute as well. When your home increases in value it means a bigger investment return when you are ready to sell.
  1. Equity – Paying rent means giving money to your landlord for the privilege of staying in their home. You won’t see that cash again. When you pay your mortgage you’re investing money into your future by building equity. You can borrow against this equity for a variety of reasons including home improvements, paying for school for your kids, medical reasons, or starting your own business.
  1. Savings – Building equity is akin to putting money into a savings plan. When you sell your home you can take up to $250,000 ($500,000 for a married couple) as gain without owing any federal income tax.
  1. Predictability – Rent rates have been rising steadily for the past few years. Fixed mortgage payments stay the same. In the long-term your mortgage payment may end up being far less than a rent payment would be for the same property.
  1. Freedom – You own the home and can do as you please! You have unlimited options when it comes to landscaping, home decorating, and more. Plus, any money you spend on your home adds value to your investment.
  1. Low Interest Rates – Interest rates are at a historic low. If you buy soon you could get a loan with a great interest rate, which means a more affordable monthly house payment. Now is a great time to get your foot on the first rung of the home ownership ladder.

If you have any questions or would like to go into further details about the process of purchasing a home, Provident Partners is your one-stop shop. Give us a call at 480.314.1414 and speak to one of our real estate agents or mortgage specialists today!