Tax reform SALT affecting in Bay Area?

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pshonore
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Re: Tax reform SALT affecting in Bay Area?

Post by pshonore » Sat Mar 10, 2018 6:40 pm

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libralibra
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Re: Tax reform SALT affecting in Bay Area?

Post by libralibra » Sat Mar 10, 2018 8:02 pm

also here's a story from earlier this week : 848 square ft home sells for $2m

https://www.sfgate.com/realestate/artic ... 724159.php

ny_knicks
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Re: Tax reform SALT affecting in Bay Area?

Post by ny_knicks » Sat Mar 10, 2018 8:54 pm

Rising interest rates and tax reform will absolutely impact VHCOL areas like SF bay. How much remains to be see.

People in those areas are taking on outsized mortgages for their incomes relative to the rest of the U.S. The market is likely propped up on low rates and ability to deduct as people try to squeeze their budget.

Could be wrong but just reading about the housing market there it truly seems like home prices aren't rising in proportion to incomes. Call me crazy but that can't go on forever. Take out from under it unprecedentedly low interest rates that certainly supported that rise, add in reforms to SALT and maybe it reverses course slightly.

hicabob
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Re: Tax reform SALT affecting in Bay Area?

Post by hicabob » Sun Mar 11, 2018 10:55 am

The "tax effect" appears to be starting to affect my part of the "greater bay area" aka the local rag ...
http://www.santacruzsentinel.com/articl ... /180309665

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Que1999
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Re: Tax reform SALT affecting in Bay Area?

Post by Que1999 » Mon Mar 12, 2018 12:49 am

I'm in a HCOL area, one of the 4 boroughs outside of Manhattan. My tax guy included in his preparation of our 2017 taxes, an estimate of 2018 taxes with the same 'numbers' as 2017. Because of the cap on SALT, instant non-deductibility of mortgage interest, and loss of itemized deductions and job expenses, our household taxable income has increased by a whopping $33k. The only saving grace is the 2 child tax credits. If we didn't have children, our taxes would have substantially increased. Right now, with the 2 child tax credits I'm still paying around $600 more in 2018 than 2017. The fact that people in these locations are being taxed so much on top of the whopping taxes already, is pretty awful and unfair, IMO. Unfortunately, I'm stuck here for a few more years due to the whole career thing, but I cannot wait to get the heck out of here and move to a much lower COL location in the future.

Bacchus01
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Re: Tax reform SALT affecting in Bay Area?

Post by Bacchus01 » Mon Mar 12, 2018 7:03 am

e5116 wrote:
Mon Feb 26, 2018 10:47 am
I don't think many buyers think when contemplating a purchase: "Oh, I can only afford this $1.2M house because I can fully deduct the $25k in property taxes." So, while it could conceivably impact the financial figures for individuals, I doubt it impacts the buyer pool and I don't think mortgage companies really took that into consideration either when deciding to approve people for loans. So, I'd agree that the impact is probably negligible except it's possible that the SALT cap may push some to stay renters or not get married (to double their SALT deductions) or something along those lines. It does help renters financially more, but I think most people choose to buy for lifestyle purposes anyways.

There was a report coming out from some Realtor Association though, that did forecast by region the impact of the SALT cap, and I think it said that nationwide, it would cause a 2-3% decrease (NOT that home prices would go down 2-3%, but rather the home appreciation would be 2-3% less than had no cap been implemented). In some states/cities, that forecasted impact was larger than others (namely, high tax states/cities). Of course, nobody can forecast such things perfectly.
An industry group focused on home sales put out a report suggesting the tax reforms would hurt home sales? Shocking.

If it’s not independent, ignore it

likashing
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Re: Tax reform SALT affecting in Bay Area?

Post by likashing » Mon Mar 12, 2018 11:53 am

libralibra wrote:
Sat Mar 10, 2018 4:39 pm
madbrain wrote:
Tue Feb 27, 2018 1:47 am
Simply not true. I have only ever paid AMT once in 22 years due to a generous severance package - and got it all refunded the next year.

The combination of the $10K SALT deduction limit and removal of personal exemptions will cost me $5000 extra in taxes this year, corresponding to a 25% increase in our federal taxes.

We had $38k of itemized deductions that will turn to $24k standard deduction. And loss of $8k in personal exemptions. That's $22k in extra taxable income. Absolutely nothing in tax reform makes up for this since we have no children, so no child tax credit.
I typed in your numbers to taxplancalculator.com with the deductions 13k prop/10k state/15k other and it predicts $27,232 vs $28,179, i.e. you lose $946. Tried a few things, but couldn't get it to show a 20k vs 25k result, so wondering if your estimate is off.

For me, the calculator is predicting about 3k worse, however I always pay at least 5k AMT, so still a net win for me. (Surprised you didn't hit AMT, at least when single, since high wage+high state tax seems to trigger it.)

PS. Just to get back on thread, a friend told me a house in his neighborhood listed at 1.9m sold for 2.4m last month, so I guess not seeing any effects yet
Personally I have run into 2 other people in real life who are furious about the amount of deduction lost, but unaware that they total taxes will be only slightly higher, the same, or even lower, with the new tax brackets and/or child tax credits, instead of "losing $20k in deductions at 33% marginal rate".

SeaToTheBay
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Re: Tax reform SALT affecting in Bay Area?

Post by SeaToTheBay » Mon Mar 12, 2018 1:09 pm

likashing wrote:
Mon Mar 12, 2018 11:53 am
Personally I have run into 2 other people in real life who are furious about the amount of deduction lost, but unaware that they total taxes will be only slightly higher, the same, or even lower, with the new tax brackets and/or child tax credits, instead of "losing $20k in deductions at 33% marginal rate".
This is our situation. We're losing a ton in deductions (own a home in Bay Area, so the property tax "uses up" the $10k in SALT so our entire state income tax is no longer deductible) but the marginal tax rate really benefits people making low-mid 6-figures, so by doing the calculators we should actually pay a little less in taxes than before.

libralibra
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Re: Tax reform SALT affecting in Bay Area?

Post by libralibra » Tue Mar 13, 2018 7:27 pm

likashing wrote:
Mon Mar 12, 2018 11:53 am
Personally I have run into 2 other people in real life who are furious about the amount of deduction lost, but unaware that they total taxes will be only slightly higher, the same, or even lower, with the new tax brackets and/or child tax credits, instead of "losing $20k in deductions at 33% marginal rate".
Hopefully they understood if you tried to help and explain it to them. I've noticed here there's sometimes no followup, so you don't know if the poster understood or agreed with your correction, or if it was just a strawman to make an argument or something.

Gray
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Re: Tax reform SALT affecting in Bay Area?

Post by Gray » Tue Mar 13, 2018 8:26 pm

Without my mortgage interest deduction, my taxes would be much higher. The point is, under the old system, my taxes would be lower. I too am angry.

sco
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Re: Tax reform SALT affecting in Bay Area?

Post by sco » Wed Mar 14, 2018 12:38 am

Gray wrote:
Tue Mar 13, 2018 8:26 pm
Without my mortgage interest deduction, my taxes would be much higher. The point is, under the old system, my taxes would be lower. I too am angry.
Who exactly should subsidize your decision to purchase a house?

libralibra
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Re: Tax reform SALT affecting in Bay Area?

Post by libralibra » Wed Mar 14, 2018 1:57 pm

sco wrote:
Wed Mar 14, 2018 12:38 am
Gray wrote:
Tue Mar 13, 2018 8:26 pm
Without my mortgage interest deduction, my taxes would be much higher. The point is, under the old system, my taxes would be lower. I too am angry.
Who exactly should subsidize your decision to purchase a house?
Gray wrote:
Fri Apr 28, 2017 3:48 pm
I'm closing on Monday, May 1, on a $1.32M house in a HCOL area, the City of Falls Church. It's a 2017 finished new construction, with 4,500 SF, 6 bedrooms, and 5.5 baths.
Actually, the mortgage interest deduction is not going away.

When I enter some numbers into http://taxplancalculator.com/, it says a couple with 17k property tax, 35k mortgage interest, 350k income and 1 kid saves $4331. And that's not even considering AMT, if any.

mervinj7
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Re: Tax reform SALT affecting in Bay Area?

Post by mervinj7 » Fri Mar 23, 2018 1:54 pm

The latest data shows there has been no change to the Bay Area housing market due to the SALT reform. By no change, I mean it keeps going up to new record levels.
In Santa Clara County, the median price for a resale, single family home hit $1.29 million last month — up 34 percent from the same time last year, according to the CoreLogic report. In San Mateo County, the median price reached $1.45 million — up 24 percent, — and in San Francisco it was $1.5 million, up 30 percent.
https://www.mercurynews.com/2018/03/22/ ... ecord/amp/

ryman554
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Re: Tax reform SALT affecting in Bay Area?

Post by ryman554 » Fri Mar 23, 2018 4:05 pm

libralibra wrote:
Wed Mar 14, 2018 1:57 pm
Actually, the mortgage interest deduction is not going away.

When I enter some numbers into http://taxplancalculator.com/, it says a couple with 17k property tax, 35k mortgage interest, 350k income and 1 kid saves $4331. And that's not even considering AMT, if any.
It may not be going away, but it's severely limited:

1. Current standard deduction is 12,000. new standard deduction is 24,000. That means you need to "use up" $12,000 more deductions to break even with the standard deduction.
2. SALT is limited to 10,000. Previously SALT unlimited, but practically limited by AMT considerations. It means that SALT cannot use up much less of the standard deduction... Your mortgage interest has to cover at least $14,000 before it makes a dent in your tax deductiblity, whereas, every dollar of mortgage interest was used before if your SALT was high.
3. For new loans, there is a cap of $750,000 on deductible mortgages, and HELOC deductabity went away. In the past it was $1M limit.

Assuming a 5% loan(!):
Now: thats a (maximum) interest of $37,500, but you have to subtract off $14,000 due to standard deduction reasons, so you can only deduct interest on balances between $280,000 and $750,000.
2017: you could have deducted interest on balances from $0 to $1M. (maximum of $50,000)

So, the mortgage deduction *is* very much being phased out more quickly for those at the top, and perversely, non-existent for those at the bottom, or even median houses, even moreso for people in low SALT states.

libralibra
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Re: Tax reform SALT affecting in Bay Area?

Post by libralibra » Fri Mar 23, 2018 5:50 pm

As has been explained in countless posts here and other articles, you can't look at just one thing like this and say it's a loss. Look at the net effect of all the changes and then decide if you win or lose. What you are doing is just picking the things that cause your personal numbers to go up, without realizing that the other offsets probably outweigh them.

btw, I just read an old article that points out that California is not backing down from having the highest taxes in the nation, up to 13.3%. https://www.forbes.com/sites/robertwood ... lls-exodus To get back on topic, if enough people start leaving the state, this probably has a bigger effect on housing prices than the SALT changes. And, of course, the ultimate driver is the economy. A dot-com like recession would hit prices in the Bay Area more than almost anything else.

mervinj7
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Re: Tax reform SALT affecting in Bay Area?

Post by mervinj7 » Fri Mar 23, 2018 6:21 pm

libralibra wrote:
Fri Mar 23, 2018 5:50 pm
To get back on topic, if enough people start leaving the state, this probably has a bigger effect on housing prices than the SALT changes. And, of course, the ultimate driver is the economy. A dot-com like recession would hit prices in the Bay Area more than almost anything else.
Even during the worst of a dot-com like recession (i.e. the dot-com recession), the prices in the Bay Area only (temporarily) dropped 7.5%. That example is not enough to scare off any potential buyers.
https://www.zillow.com/research/bay-are ... ust-15317/

libralibra
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Re: Tax reform SALT affecting in Bay Area?

Post by libralibra » Fri Mar 23, 2018 6:46 pm

mervinj7 wrote:
Fri Mar 23, 2018 6:21 pm
libralibra wrote:
Fri Mar 23, 2018 5:50 pm
To get back on topic, if enough people start leaving the state, this probably has a bigger effect on housing prices than the SALT changes. And, of course, the ultimate driver is the economy. A dot-com like recession would hit prices in the Bay Area more than almost anything else.
Even during the worst of a dot-com like recession (i.e. the dot-com recession), the prices in the Bay Area only (temporarily) dropped 7.5%. That example is not enough to scare off any potential buyers.
https://www.zillow.com/research/bay-are ... ust-15317/
Come to think of it, the 2008 recession was far worse. I know of houses that dropped from 800k to 400k in the bay area. Those are back up and above those prices now. So the downside potential is there.

madbrain
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Re: Tax reform SALT affecting in Bay Area?

Post by madbrain » Fri Mar 23, 2018 8:06 pm

libralibra wrote:
Fri Mar 23, 2018 6:46 pm
Come to think of it, the 2008 recession was far worse. I know of houses that dropped from 800k to 400k in the bay area. Those are back up and above those prices now. So the downside potential is there.
I know someone who bought condo in south SJ for $400k in 2006 - and it dropped to $130k after 2008 . That's a 68% drop.

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