Millennials are finally moving out of their parents’ houses into their own. This is a huge reversal. Not too long ago, in 2012, Zillow tells us that 36% of the 18 – 34 year old demographic “…were living in their parents’ homes, the highest share in at least four decades.” Now, in 2017, this Millennial demographic is the largest group of homebuyers.
Why the move?
1. Rising rents – rising rents tilt the calculus towards buying a house, not renting one.
2. Strengthening economy – job creation is on the upswing as is faster wage growth. Both of these “new” happenings make home ownership and its attendant mortgage interest tax deduction more attractive. (More on this below.)
3. Formation of households – as the credit crisis ended and its residual effects declined, Millennials began moving out of their parents’ houses, moving in together and getting married. The next two steps? Having children of their own and buying houses of their own.
4. Time heals all wounds – as time passes, the fear of making a large financial commitment diminishes.
One of the main reasons home buying has a leg up on home renting is the special place residential real estate has held in our nation’s tax code. Mortgage interest rate deductions, capital gains deductions on home sales and incentives for both second home ownership and moving from one home to another have been almost sacrosanct for years.
This year, however, the proposed Republican tax bill would reduce and/or do away with such homeowner deductions. Focusing specifically on pertinent tax revisions related to real estate, proposed changes may include…
1. Reducing debt deductions on new mortgages to $500,000 instead of the current $1M deduction.
2. No more than $500,000 deductions of capital gains on profit from the sale of a primary residence to married taxpayers.
3. No more than $250,000 deductions of capital gains on profit from the sale of a primary residence to single taxpayers.
4. No deductions on mortgage interest rates for second homes or for home equity loans.
5. Requirements to live 5 of 8 years in a primary residence, not the current 2 of 5 years, to claim any incentives/deductions for moving expenses.
Maria Wells, president of the Florida REALTORS Association has “grave concerns” about the Republican proposals to reduce tax deductions for mortgage interest rates, end write off for property taxes and boost capital gains taxes on home sales.
Wells believes home values in her state will drop 15% due to fewer consumers having essential tax incentives to buy homes listed for sale. Specifically, Wells believes that less generous tax incentives could make home ownership less attractive to first time buyers and to second home buyers.
Flatly, “we do not want to become a culture of renters,” said Wells. “We want to become a culture of homeowners.”
Will Millennials be deterred from moving out of their parents’ homes into their own homes if and when the currently proposed Republican tax bill passes?
While your House and Senate representatives are crafting and revising the proposed tax bill, time is of the essence for you and your various local, state and national REALTORS associations to speak up to your elected representatives in both houses.