Here's Why Now Might Be The Best Time To Buy A Home If You Earn More Than $100K
From FORBES, September 30, 2018
Article by KARL KAUFMAN, founder of American Dream Investing
My parents have just put our family home on the market after nearly 30 years of living there. During the process of meeting with realtors, they were told that agents are facing resistance from buyers who are unsure about how the new tax law will affect them. After digging deeper into the new law, I came across some surprising information that stands to benefit homebuyers in a specific income range.
Confusion surrounding the recently passed Tax Cuts and Jobs Act (TCJA) is widespread in higher local tax states like California and the Northeast. While many buyers are postponing the purchase of a new house this season, waiting until 2019 to find out what is owed in taxes for the 2018 tax year could be a mistake.
Between changes to the Alternative Minimum Tax (AMT) and the change in deductions for State And Local Taxes (SALT), potential homebuyers may stand to benefit more from the tax law by purchasing a house before the end of the year.
Though much was made of the SALT limit by politicians and the media, doubling of the standard deduction and increased deductions for childcare might offset the $10,000 SALT deduction limit for many homeowners.
Evan Roberts, a real estate agent and founder of Dependable Homebuyers in Baltimore, Maryland says you don't want to be the one subsidizing loans for other buyers. "Now is the best time to buy a house despite the $10,000 limit on SALT deductions," he said. "Interest paid on your mortgage is still deductible and most individuals will find that they are under the limit and are still able to deduct their property taxes. With rising interest rates it is critical to lock-in a lower monthly housing expense, especially if you make over $100k a year.
"As rates increase, lenders will compete to keep their products affordable to lower-income individuals. Banks will compensate for losses by increasing the costs of high-income individuals to obtain a loan."
The Fed raised interest rates by a quarter of a percent this week, and another rate hike is widely expected in December. Although these only apply to short-term rates, they frequently wind up pushing long-term rates (like mortgage rates) up higher. Though a quarter of a percent might not seem like a lot, it would mean paying thousands of dollars more over the lifetime of the mortgage.
"Anyone who has dragged their feet over the past 6 years must regret it because prices have only gone up, said Ralph DeFranco, Global Chief Economist for Arch Capital Services Mortgage Group in San Francisco, California. "The same strong housing fundamentals are still in place, so prices are set to increase further. There is a shortage of housing, the job market is strong and we are seeing an uptick in younger buyers. All of which will continue to push up prices."
"Buying a house now and paying up to $10,000 in taxes will allow you to maximize your total write off for 2018. If you wait until 2019 and have over $10,000 you will not be able to write off anything above that $10,000," said Michael Foguth, founder of Foguth Financial Group in Brighton, Michigan. "Households that make over $100,000 made up 88% of the SALT deductions last year. So, if you are in that category, buying now and maxing your deduction for 2018 with only a few months left on the calendar will save you thousands on your taxes."
"Now is a great time to purchase a home because sellers who list in the fall are generally more motivated to sell," said Stacy Levey, my parent's real estate agent at William Raveis in Chappaqua, New York.
As for the AMT, the tax law has dropped it from the 39.6% maximum rate to 28%, which applies to AMT income over $187,800 for married couples filing jointly or $93,900 for single tax filers. Bob Carlson, writing this weekend in Forbes, clearly summed up the changes to the AMT law. "You need to have a lot of tax preference items to trigger the AMT," he wrote.
As always, you should do your homework and confer with a good accountant regarding your personal tax situation. With interest rates and home prices rising, if you're in the market for a new home, now might be the best time to buy.
"Owning a home is still a cornerstone of the American dream and a foundation for building wealth," said Levey. "Homeownership is the bedrock of a strong community."