The federal tax overhaul likely will not have a substantial direct inpact on the housing market in metro Atlanta, experts say, but it could increase migration to Georgia from other more expensive states and from high-cost parts of the state to lower-cost areas.
The Tax Cuts and Jobs Act of 2017 may also prompt a short-term rise in refinancings, as homeowners roll home equity lines of credit, whose interest is no longer deductible, into their first mortgages.
While the legislation, passed by both houses of Congress late last year, focuses primarily upon dramatically easing the federal tax burden of businesses, there are a number of provisions that affect individuals — several of which directly impact residential real estate and, in a couple of cases, throttle back on the tax benefits of homeownership.
Most notably, the legislation allows homeowners to deduct the interest on up to $750,000 in mortgage debt on their federal tax returns for new loans taken out after Dec. 14, 2017 — a loan amount cap significantly lower than the previous $1 million.
It also places a $10,000 cap on the amount of state and local taxes (“SALT”) for property, income and sales that can be claimed as an itemized deduction.
The residential real estate community in Georgia and across the nation strongly lobbied Congress as it formulated the bill.
“Realtors worked very diligently in contacting our congressmen about saving both the mortgage interest and SALT deductions, which were both originally set to be eliminated,” said Dorrie Love, vice president of governmental affairs for the Georgia Association of Realtors, and an associate broker in the Peachtree City office of Harry Norman Realtors.
These deductions are a couple of incentives that make owning a home more financially attractive than renting, according to Love. “And one of our main arguments was that we want a nation of owners who are invested in their communities — not a nation of renters.”
Outside of what she describes as “some pockets of luxury, high-end housing,” the new, $750,000-mortgage interest cap should have little impact in Georgia and Atlanta, according to Love, who notes that “With the average home price in Georgia at $251,000, there are not many people that are going to have to worry about it.”
“Other than in a few pockets in the center of Atlanta, parts of Buckhead, and some of the more expensive areas on the Georgia coast, I don’t think this is going to have a major effect on the majority of Georgians,” said Richard Darlington, president of the Mortgage Bankers Association of Georgia, and senior vice president and regional manager with the Kennesaw office of Brand Mortgage.
Among homeowners, “In general, this will affect higher-income taxpayers more than average-income taxpayers, just because they can generally afford a higher purchase-price home,” said Paul Giliberto, wealth and estate planning strategist with SunTrust Banks Inc.’s Private Wealth Management unit.
The new tax law also eliminates the deductibility of interest on home equity lines of credit.
“From a mortgage standpoint, we often use these to structure a loan to avoid private mortgage insurance, or provide a way to tap equity to pay off bills, for example,” said Darlington. With the new rules in place, “I think, over the short term, we will probably see an increase of refinancings,” he said, “where people consolidate an equity line with their current first mortgage in order to wind up with a larger loan, where the interest can be deductible again.”
The new $10,000 SALT deductibility cap might well be a stimulus for Georgia’s housing markets, according to Kelly McCutchen, a senior fellow with the Georgia Public Policy Foundation, a nonprofit, nonpartisan research institute.
“This [provision] is primarily going to impact taxpayers with expensive houses in high-tax areas in the Northeast and on the West Coast,” McCutchen said.
This could work to the benefit of housing markets in relatively low-tax states with low costs of living — like Georgia, he notes.
“We’ve already seen the migration pattern of people leaving high-tax cities in the Northeast and coming south, and we will be seeing that even more now,” said McCutchen.
And this national dynamic could even play out inside Georgia, “where people may consider moving out of places like Atlanta, where prices are more expensive and taxes are higher,” McCutchen said, “which in turn could create opportunities for housing markets in rural and suburban Georgia, where the taxes are lower and they can get more house for their money.”
The “big story” regarding the SALT cap, adds McCutchen, “is that this is certainly not going to help someone with a $4 million-or-more house, and might make it a little harder to sell — but the rest of the housing market should continue to do well.”
Any effects of the new mortgage and SALT caps on the housing market might be offset by other provisions of the new tax legislation — such as the lower tax rates and the doubling of the standard deduction — that can positively impact the tax returns of households.
In the higher, $500,000-plus annual-income range, “You’ll find a lot of higher income tax payers will have a net tax decrease when all is said and done,” Giliberto said, adding “I don’t know that it will necessarily impact real estate purchasing decisions, but it certainly impacts their tax pictures.”
Overall, don’t look for much change in the way the housing market operates in Georgia and Atlanta this year.
“The market has been solid and the trends have been very favorable for the past couple of years,” adds Darlington, “and I anticipate 2018 to be no different.”