The Tax Policy Center indicates that more than 8% of ALL New York state residents will face higher taxes for 2018 under the new Tax Cuts and Jobs Act of 2017. For New Yorkers with incomes in the top 1%, 29% will see taxes rise.
Nearly 50% of ALL Manhattan taxpayers took an average deduction of $60,000 in state and local taxes in 2017. Not so fast in 2018. State and local taxes, including property taxes, are now being capped at $10,000.
The new tax legislation also limits mortgage interest deductions at $750,000, not $1M as before. (The average sales price for a co-op/condo in New York City in Q2 2018 was $2.09M, according to Douglas Elliman Real Estate.)
Add to all of that the state of New York’s personal income taxes at a rate of 8.82% and the New York City’s tax rate of $3.876%.
What are New Yorkers doing to help minimize their new tax bill pains? Many are moving to low tax states such as Florida.
An added incentive for moving is that married homeowners who sell their primary residence can shield up to $500,000 of capital gains taxes from their now sold property.
For example, prices for single-family homes in Naples Florida have already gotten a big bump a result of New Yorkers flooding the state. The Naples Area Board of REALTORS indicated that homes priced at $2M increased +25% in Q2 2018 compared with Q2 2017. The number of pending home sales has increased +22% and the number of pending condo sales in Naples has increased +32%.
If not moving to a low-tax state, some New Yorkers are deliberately seeking out buildings with tax abatements to reduce their costs. Others may be converting part of their home into an office for their business and/or becoming an Airbnb destination to get a tax deduction.
Meanwhile, back to the New York market, business has slowed substantially due, according to several real estate analysts, to the new tax law. Douglas Elliman indicated that home sales in Manhattan declined -16.6% in Q2 2018 compared to Q2 2017. Westchester has seen home sales drop -17.7% compared with last year at the same time and the Hamptons has seen a -12.8% drop. Home sales in Brooklyn dropped more modestly to -5.7%, in part due to more modest home values.
Adam Kamins, a senior regulatory economist with Moody’s Analytics, said, “It is clear that tax changes are already having an impact on the real estate market. It’s still too early to know the full extent…of the slowdown in New York… to both show up in home prices and to be fully internalized by buyers and seller. In fact, it may not truly happen for many until they fill out their tax returns next spring.”