What Will the New Tax Law Do to the Housing Market?

The new tax law will have a profound impact on the housing market, although in ways that go beyond the deductibility of mortgage interest and property taxes. 

New tax law might slow down housing market.Home buying might slow down gradually under the Tax and Jobs Act, due to a series of causes and effects that begin with the tax cuts.

The reduced revenues from the tax cuts are likely to increase the budget deficit. This would likely lead to rising interest rates.

Fewer Mortgages

That in turn may slow down new borrowing, especially mortgages, which would likely curtail home-buying by anyone who isn’t prepared to pay cash.

Those who can pay cash for new homes include the wealthy and people who are selling a larger property to move into a smaller one.

Certain non-U.S. buyers might also be likely to pay in cash or at least not be concerned about whether local property taxes were deductible.

And people who are attempting to launder money choose cash purchases of real estate in order to do so. Paul Manafort is a high-profile example of this type of move, and it obviously hasn’t worked out well for him.

These changes may take a while to materialize from the new tax law, especially because the details are apparently still being worked out on an administrative level.

Clarifications of the New Tax Law

So far, the Internal Revenue Service has only made two announcements about how it might implement different aspects of the law.

The first of these concerned making donations to charity before the end of the year to take advantage of the previously existing rules on how much needed to be donated before a taxpayer could itemize a charitable donation; after the first of the year, less can be deducted — the exact amount depending on how you file.

The second IRS clarification came out on Wednesday, dealing with the issue of whether prepayment of property taxes would allow taxpayers to deduct more of them from their tax returns. What will happen to the housing market as a result of the Tax and Jobs Act?

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