NYC AND THE NEW TAX BILL
NYC AND THE NEW TAX BILL
- The new tax bill which became effective January 1, 2018 has been at the top of buyers’, sellers’, and pretty much everyone’s mind. While it is necessary to consult with a tax professional to assess how the various changes will affect each individual or family, we thought it would be helpful to highlight some of the provisions that could most directly impact the New York City real estate market:
- The final bill replaces the previous corporate taxation structure which had a maximum rate of 35% with a new flat rate of 21%. Corporations’ higher after-tax profitability could increase earnings for employees and executives while also benefiting certain high net worth individuals’ tax structures. This additional revenue could in turn be used towards real estate investments.
- Lower corporate taxes could decrease the value of Lower Income Housing Tax Credits (LIHTC) as an income offset and their associated funding for lower income housing construction.
- The final bill caps the deduction for state and local property and income taxes (SALT) at $10,000 for both individual and joint filers. This ceiling on the maximum state and local taxes which can be itemized and deducted most directly impacts high tax states like New York. Although Governor Cuomo has indicated that New York may consider partial restructuring of its state tax code to counteract the relatively punitive effect of the SALT deduction ceiling, no changes are currently in place and one certainly cannot rely on them occurring.
- The final bill increases the standard (i.e. non-itemized) deduction to $24,000 for joint filers and $12,000 for individual filers. A higher standard deduction would make some individuals less motivated to itemize their deductions and consequently reduce the value of mortgage interest and property tax deductions as home-ownership incentives.
- The final bill reduces the limit on deductible mortgage debt to $750,000 for new loans taken out after 12/14/17. The previous deductible mortgage debt limit of $1,000,000 will remain in effect for loans prior to that date.
- The final bill retains the current 1031 like-kind exchange rules and accompanying capital gains tax deferment for real property, while repealing it for personal property such as art work, etc.
- The final bill doubles the estate tax exemption to $11.2 million for individuals and $22.4 million for married couples.