Renters are unlocking savings on their federal taxes, and a real estate watchdog believes that will translate into greater home sales. The Tax Cuts and Jobs Act may well fuel an increase in entry-level home buying in most areas of the country, according to a newly released report from John Burns Real Estate Consulting.
Renters paid $2,716 less in taxes on their 2018 federal tax bill across some of the top housing markets (ranging from $1,918 less in places like Miami to $5,214 less in San Jose, Calif.). Renters do not have deductible mortgage interest or property taxes that could help qualify them for itemizing, the study notes. This increased standard deduction and lower taxes helped create additional income for renters. As such, they may be able to save up to branch out sooner into home ownership, the authors note.
Further, “entry-level homes will continue to outperform,” the report reads. “Low unemployment, sound economic and demographic fundamentals, and stretched affordability support strong entry-level housing demand.”
The report also is bullish on greater migration heading to the South, with more residents leaving higher-taxed coastal areas in favor of more affordable areas. Low-tax states should continue to see immigration from other states and strong housing demand, while emigration is accelerating in California, New York, New Jersey, and Illinois. “The [Tax Cuts and Jobs Act] did not create these trends but has amplified them,” the report notes.
The Tax Cut and Jobs Act overhauled the U.S. tax code in 2017 and placed caps on certain deductions for homeowners. The tax law placed a $10,000 cap on deductions of state and local taxes, increased the standard deduction, and placed a $750,000 limit on the amount of mortgage debt that qualifies for interest write-offs.
However, homeowners across the country still found some savings on their 2018 federal tax bill, too. Homeowners saved an average of $1,508 on their tax bill, the study notes. The increased standard deduction of $24,000 exceeded the total state and local tax deduction and mortgage interest deduction in many households. “Most homeowners don’t benefit from itemizing currently; however, this has been the case for the last decade,” John Burns Real Estate Consulting notes.