The federal tax code is changing, and its impact on homeowners in some areas is going to be detrimental. The new law puts a cap on state and local taxes, setting it at $10,000. It also reduces mortgage interest deductions on new loans from $1 million to $750,000, which means residents in states like California with higher taxes and housing costs will feel the pinch. The standard deduction is doubled in the new code, which means homeowners are less likely to itemize.

In San Jose, San Francisco, and Oakland, Los Angeles, Oxnard, and San Diego, homeowners stand to lose thousands of dollars per year when it comes to their deductions. In areas where the median home prices are high, this loss of deductions may discourage people from buying, making renting a more attractive option. It may also cause people to leave entirely, opting for areas where housing is less expensive. When it comes to the Bay Area, we may see continued migration to technology hubs like Seattle and Austin, Texas, which are growing but far more affordable.

While the $10,000 tax deduction cap may not seem extreme, it’s a deep cut for Bay Area Homeowners. Homeowners in some of the area’s wealthier neighborhoods averaged about $60,000 in deductions in 2015, between state and local taxes. To have those so severely curtailed is going to be a painful hit.

Bay Area real estate agents don’t think the new laws will put an end to the rising prices that have been growing for almost six years. The region is still attractive as far as job creation goes, and there’s still not sufficient housing for new workers, so the supply and demand is imbalanced. High-end buyers are still going to purchase properties in the best neighborhoods and school districts, often paying for multi-million dollar properties with cash. It’s worth watching, though, to see how these new tax laws affect residential real estate in the long run.

Whether your focus is urban residential or resort real estate development, SagePoint has the knowledge and tools to keep you at the forefront of the industry, with the professional marketing, sales and advisory services you need to stay on top. When we’re part of your project from the very start, you can expect your property to be positioned, designed and built to target your market and maximize your returns. To learn more about our services, please contact us online or email us at inquiries@sagepointre.com.