Both chambers of Congress recently passed the infamous tax overhaul bill. The first tax overhaul in over 30 years will affect every aspect of the U.S. economy, and its impact will largely depend on where you live. Whether the tax benefits will favor corporations, business owners, or homeowners continues to be up for debate—and a heated one at that. But how will it impact the world of real estate right here in New York?
It was widely believed that the GOP tax bill would reduce the tax benefits of owning a home and there would be a knock-on effect that would cause house prices to tumble in some states, however there isn’t a one-size-fits-all approach and ultimately it will be your zip code that will seal your fate.
The finalized tax reform legislation initially looks like a bad deal for New York homeowners and a little more favorable to commercial investors. Any perks could also be offset by higher interest rates and put a stop to people’s dreams of winning a second home. These changes initially look a little worrying for real estate investments.
The loss of state and local income tax could also see tax increases in New Jersey, New York, California, and Maryland. Elsewhere, the other 46 states will be embracing a substantial tax cut. As a result, it’s believed that Manhattan could see a 9.5 percent drop in home values. Alternatively, the decline in areas such as Queens and Brooklyn should be less than 2 percent.
Some will question if the new tax rules will frighten investors away from investing in real estate or if history will repeat itself. For example, those with long memories will be wary of the fact that the last time the U.S. attempted significant changes in the tax code was back in 1986. For many, this was just the beginning of the major asset and banking crisis that would soon follow.
Despite the apparent fears, there is an argument that it will be business as usual for real estate investors. Sure, the introduction of the GOP bill is less than ideal for New York and its residents, but I firmly believe that it will not prevent people from investing in our great city.
For example, if we take a step back from the doom and gloom or scary headlines, it’s clear that states such as New Jersey are ripe for investment right now. Although new investors might be a little cautious, make no mistake that seasoned developers will be aiming to capitalize on the demand around areas that are considered commuter hubs. Nothing will make an investor walk away from a lucrative real estate opportunity like this.
As with almost any new legislation, there will be winners and losers. Limited liability companies (LLCs) and real estate investment trusts could be the former. Developers and investors in New York City, heavily rely on LLCs and partnerships. The increase in tax cuts will be seen as a tremendous positive for real estate investors that play the game by the new set of rules.
It’s completely understandable that the tax changes won’t be attractive to homeowners in NYC right now. But, investors will continue their pursuit of real estate investments by taking advantage of tax cuts in the area and seize any opportunities with both hands. But, it’s unclear at the moment if these changes will also deliver a much-needed boost to the economy.
Thriving in a new digital age of hyper-change and uncertainty can be incredibly daunting. Right now, New Yorkers will rightly feel that the benefits of homeownership are disappearing. However, once you scratch the surface, the rules are the same. If you choose the road to success, you will need to work, save, and invest. So how much has actually changed?
Allen Shayanfekr
Co-Founder and CEO, Sharestates
212-201-0750
@sharestates
www.sharestates.com
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