Impact of Tax Reform on WI Real Estate

Here are 10 ways the Wisconsin Real Estate Market will be impacted by the 2017 Federal Tax Reform:

1. Mortgage Interest Deduction
The new law reduces the mortgage interest deduction from $1 million to $750,000 and maintains the deduction for second homes for mortgages issued prior to December 15.

2. Doubling of the Standard Deduction
The new tax law doubles the standard deduction to $24,000 for married couples who file jointly and $12,000 for single filers.

3. Home Sale Capital Gains Exemption
On the of the items to go unchanged thankfully the capital gains exclusions for the sale of a primary residence remains at $500,000 for a married couple at $250,000 for an individual as long as you lived in the property 2 of the last 5 years.  Earlier versions of the proposed legislation changes pushed for a person to live in a property 5 of the last 8 years before they could claim this exemption.

4. State and Local Taxes (SALT)
The new tax law places a cap on the deduction for state and local taxes, allowing taxpayers to deduct up to $10,000 of state and local taxes, including property taxes and the choice of income or sales taxes.

5. Pass-Through Business Income
The tax rate for pass-through entries like solo proprietorships, LLCs and partnerships is reduced from 39.6% to 20%.

6. Home Equity Line of Credit (HELCO)
The deduction for interest on home equity loans/lines of credit is eliminated beginning in 2018 with no grandfathering of existing loans.  There is possibly an exception being discussed if a home owner can prove the loan was used directly for improvements to the home.

7. Like-Kind Exchanges
Also known as 1031 Exchanges, like-kind exchanges are maintained under the new law and allow a property owner to defer the payment on taxes on profits from the commercial property sales if the owners reinvest those profits into similar commercial property.

8. Depreciation
The depreciable life of both residential and commercial real estate property is reduced from 39 years to 25 years.

10 Moving Expenses
The new law eliminates the deduction for moving expenses/costs.  Under the prior law, a homeowners could claim a deduction for reasonable moving expenses if the new workplace was at least 50 miles from the home.

Buyers Should be Looking NOW!

2017 was the third straight year of record-setting sales in the state. Despite a decline in December sales of 3.3 percent over 2016, the strong economy pushed 2017 annual sales up 1.4 percent past the previous year with more than 83,000 units sold with an average price of $174,000, up 5.5 percent from 2016. 

These outstanding numbers seem almost impossible considering the continuing low inventory of properties for sale. The state’s low unemployment and mortgage rates coupled with steady job growth has fueled the housing demand. As we’ve stated before, there are no shortage of buyers ready to purchase. Just imagine how many units could have sold in 2017 if there was a substantial inventory to select from! 

Of course, the robust economy paired with the low inventory of homes for sale means there is a very high demand for homes… and homes are selling at an extremely brisk pace. In December, most homes were on the market for 80 days. To put it in perspective, that’s down from 99 days a year prior. This has pushed the average home price up 5.5 percent from 2016.

Regarding supply, rising prices may incentivize current owners to sell their homes, especially Baby Boomers entering into their 70s. Eventually, their increased need to make health-driven decisions about where they reside may increase the supply of homes. These factors could lead to minor supply improvements in 2018.

The good news is, those looking to buy should be ever diligent now as it's a great time to purchase.  While the inventory remains low, there are fewer buyers out looking  - who wants to move in the winter, right? - but it also means less competition in a very competitive market.

If you need help, contact me.  I'm happy to help!