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Tax reform and real estate: potential impacts of the proposed changes

Tax reform Tax reform and real estate are inexorably linked. While tax reform, at the present moment, still has a long road to legislative success, the proposed overhaul has numerous potential impacts on the real estate world. Before the perusing, parsing and politicization of President Trump’s nine-page proposal gets hot and heavy, let’s look at some essential features that affect the real estate industry.
Here are the three brackets in the proposal:

  • A bottom individual tax rate of 12%.
    This is a bump from the current rate of 10%, but people currently in the 15% marginal tax bracket would be included in here and will see a tax cut. Plus, the standard deduction would increase to $12,000 for individuals and $24,000 for married couples. That would ease the blow for those paying 10% today.
  • A middle tax bracket of 25%.
    We still don’t have info to define what the middle is.
  • The top individual tax rate is 35%.
    This is down from the current top rate of 39.6%.

The plan also references a fourth, higher bracket but hasn’t shared what percentage will be attached in the current proposal. Experts say this seems to be Trump’s way of handling his campaign promise of not lowering taxes for the rich.
While the plan eliminates most itemized deductions, it is purportedly intended to protect part of the mortgage interest deduction and charitable write-offs.
The plan wipes out state and local tax deductions, which could hurt high-cost areas like California and New York. It would put an end to homeowners deducting their property taxes.
Other proposals, to double the standard deduction on personal income, alter investment amortization, and get rid of the 1031 tax-free exchange program would add disruptions and numerous potential ripple effects.
You can read the entire plan here. You can find a good rundown here from Business Insider. A more in-depth report from Inman can be found here.
Tax reform and real estate is often a complicated, convoluted subject to analyze. This is not the first tax reform bill I’ve lived through, however, in more than 25 years in the industry selling property in Montecito, Hope Ranch or any of Santa Barbara’s upscale communities. If you’re considering listing your home in any of these areas, please check out my comprehensive website then give me a call at 805.886.9378 or email me at Cristal@montecito-estate.com. And be sure to follow my blog. I’ll share up-to-date info on the proposed tax reform and its potential ramifications for real estate sellers, buyers, owners, and investors.

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