The Tax Cuts and Jobs Act, which went into effect on Jan. 1, 2018, allows homeowners to deduct mortgage interest on a loan up to $750,000—down from $1 million—and caps state and local tax deductions to only $10,000. The reduction—or elimination in some cases—of the mortgage interest deduction appears to have significantly cooled sales in areas, such as New York City and the Bay Area, which rely on the write-off to lower their tax liability, realtor.com’s research, released Wednesday, showed.
Home sales fell 6% across a sample of 30 counties where a large proportion of households took the mortgage interest deduction, while home sales rose by a modest 0.3% in a sample of 30 counties where taxpayers didn’t use the deduction.
For months, real estate agents from places like New York City have named the tax reform as one underlying factor that’s cooled sales activity, and anecdotally it appears some high-net-worth individuals are uprooting to less expensive regions like Florida in light of the new rules, Mansion Global has reported previously.
“It’s difficult to tease out what is a pure tax effect from the overall trends that we’ve seen,” including general economic uncertainty, said Danielle Hale, chief economist at realtor.com. But realtor’s data highlights the uneven sales growth in areas that use the mortgage interest deduction versus those that don’t.
Million-dollar-plus home sales grew by 7.2% in 2018 across the sample of counties that relied on the tax deduction—a major deceleration from the white-hot 17.9% sales growth logged in 2017, according to realtor.com.
Meanwhile, million-dollar-plus home sales in counties where taxpayers rarely took the deduction before the changes rose 9.4% in 2018, remaining virtually unchanged—and unaffected—by the new tax rules, according to the website.
Mansion Global is owned by Dow Jones. Both Dow Jones and realtor.com are owned by News Corp.