According to MLSListings, the median sales price for single-family homes in San Mateo County decreased in January 2018 to $1,410,300 from the all-time high of $1,500,000 in December 2017, but is up 23% year-over-year (YOY). The median sales price of $719,000 in January 2018 for condos/townhomes also decreased from $872,500 in December 2017, but is up 6% YOY. The median number of days on market (DOM) decreased 29% YOY from 17 to 12 days for single-family homes and decreased 64% from 25 to 9 days for condos/townhomes.
The median sales price for single-family homes in Santa Clara County decreased to $1,169,500 in January 2018 from the all-time high in December 2017 of $1,297,000, but is up 26% year-over-year (YOY), according to MLSListings. The median sales price decreased to $752,000 in January from $805,500 in December for condos/townhomes, but is up 20% YOY. The median number of days on market (DOM) decreased 47% YOY from 17 to 9 days for single-family homes and decreased 56% from 18 to 8 days for condos/townhomes.
Your Guide to the Tax Reform Act’s Impact on Housing
We had a great turnout last week for our first seminar of 2018, which covered the impact of the Tax Reform Act on real estate. Below is a summary of the changes in the Act that most directly relate to housing along with the impact they have on various personal situations, which was discussed at our seminar.
The limit on deductible mortgage debt was reduced from $1,000,000 to $750,000 for new loans taken out after 12/14/17. Current loans of up to $1 million are grandfathered and are not subject to the new $750,000 cap.
- Current homeowners – No change. Note: current homeowners may refinance existing loans up to $1 million and still deduct the interest as long as the new loan does not exceed the amount of the old loan being refinanced.
- Homebuyers purchasing a home with a loan smaller than $750,000 – No impact.
- Homebuyers purchasing a home with a loan greater than $750,000 – May want to consider a larger down payment to bring the loan amount down to $750,000.
The tax deduction for property taxes, state and local income taxes, and sales taxes is now limited to a maximum of $10,000. This $10,000 limit applies for both single and married filers.
- Homeowners who pay less than $10,000 in property, state, and local taxes – No impact.
- Homeowners who pay more than $10,000 in property, state, and local taxes – Lower property taxes may become a consideration for those who were already planning a move to another area, but likely won’t be enough of an incentive for homeowners to move for that reason alone.
- For homebuyers – Most homebuyers choose to purchase a home because it meets their needs and they want to live there. The tax benefits are an added consideration and generally not the primary driver.
- Note: the maximum $10,000 limit may have little to no effect for taxpayers who are subject to Alternative Minimum Tax since those taxpayers are already capped on their deductions.
Increasing the standard deduction from $6,350 to $12,000 for individual filers and from $12,700 to $24,000 for joint filers.
- For homeowners who do not itemize deductions – The new standard deduction will apply.
- For homeowners who itemize – The increase in the standard deduction may be greater than itemized deductions, so now the standard deduction will be taken. These homeowners may want to consider paying down their mortgage to reduce their interest payments which no longer have a tax benefit.
- For homebuyers – Those who qualify for the standard deduction, even with the addition of a mortgage payment after purchasing, may want to consider a smaller mortgage and a larger down payment if able since mortgage payments no longer have any tax benefits for those taking the standard deduction.
These are the major changes relating to real estate. The law also includes several changes that appear to make investing in real estate much more attractive. The details of these changes are too complex for the scope of this newsletter, but if you are a real estate investor or thinking of becoming one, this may be a good time to consult your tax advisor…and me!
Lastly, there were several proposed changes that were talked about, but ended up not being included in the final bill. These include the following:
- There are no changes to the capital gains exemption on the sale of a home ($250,000 single/$500,000 married) if the home was used as your personal residence for 2 of the past 5 years.
- Interest is still deductible on home equity loans (or second mortgages) if the proceeds are used to substantially improve the residence.
- Interest remains deductible on second homes, but subject to the $1,000,000/$750,000 limits.
- Like-kind 1031 exchanges for real property were preserved.
While the new tax rules may influence the decisions and behavior of some home buyers, sellers, and homeowners, most people will continue to make real estate decisions first and foremost based on their needs and desires. That being said, we feel it is important to always be aware of the tax considerations. I hope this guide helped in that regard.