President Trump’s new proposed tax plan intends to improve economic growth. In order reach this goal, his tax plan will be made simpler. It will include fewer tax brackets. The corporate tax rates will also be reduced.
But of importance to home owners is the proposal includes the elimination of allowing a tax deduction for real estate taxes. The only tax deductions available to home owners will be mortgage interest and charitable contributions. In return, the standard deduction will be doubled. The new plan will allow a $12,000 deduction for an individual. A married couple will receive a deduction of $24,000.
But for many, the increased standard deduction will not make up for the loss of other deductions, such as real estate taxes, medical and more. This may effectively raise the after tax cost of owning a home. In fact, for many people, this may make renting a viable alternative to home ownership.
In many states that have real estate tax rates that are much lower than here in New Jersey, this new proposed plan may be very beneficial to home owners. But with the high real estate tax rates in New Jersey, as well as many other states, this could substantially raise the cost of owning a home.
The tax plan also calls for lower corporate tax rates, the elimination of the generation skipping transfer tax and the elimination of the estate tax (commonly called the Death Tax).
However, owners of rental properties will retain the real estate tax deduction. Rental property owners will also have other deductible expenses not available to home owners. Theoretically, lower rental rates will be the result of these benefits for property owners. But we are in the midst of a severe shortage of available rental rates, as new construction of rental units has fallen far behind the rising demand. And due to this shortage of rental units, I seriously doubt that landlords will pass these tax savings on to their tenants.
So here’s a question directed to you, the home owners. With a financial benefit to you coming if you were to sell your home and become a tenant, would you do that?
Bunny and Art Reiman