- Fourth-quarter home sales in Manhattan slumped as buyers considered the impact of the new tax law.
- The Tax Cuts and Jobs Act caps the amount of state and local tax deductions at $US10,000, and rich taxpayers who itemize their deductions benefitted the most when it was uncapped.
- Homeowners across high-tax states including New York, Virginia, and California lined up to prepay their property taxes late last year before the cap took effect in 2018.
Manhattan’s housing market reflected the impact of the new tax reform months before it was signed into law, according to Douglas Elliman Real Estate.
The number of condo and co-op sales in the fourth quarter fell by 27% from the same period in 2016 to 2,127, a report released on Wednesday showed. It was the weakest fourth quarter since 2011, according to Bloomberg.
This suggests house hunters in the borough were cautious about the impact of the tax law at a time when the House and Senate were still negotiating their separate bills.
“The fall market cooled as market participants awaited the housing-related terms of the new federal tax law,” the report said.
New York’s housing market is one of the most impacted by the Tax Cuts and Jobs Act, which President Donald Trump signed into law just before Christmas.
That’s because the law caps the amount of state and local tax (or SALT) deductions at $US10,000. It used to be limitless, and rich taxpayers who itemized their deductions benefitted the most from the unlimited SALT deduction. About 90% of people who used the deduction earned more than $US100,000, according to the Tax Foundation.
Droves of homeowners across high-tax states including New York, Virginia, and California lined up to prepay their property taxes late last year before the cap took effect in 2018.
“I’m not forecasting the price impact of the tax bill yet, but I am saying it has more of an effect on the higher end and it will take buyers and sellers a while to sort it out over the next year or two,” said Jonathan Miller, the CEO of Miller Samuel and author of the report.
Sales could pick up in the first quarter of 2018 if people who postponed their decision choose to buy, he said. Meanwhile, he expects that buyers will continue to push back on high prices. Nearly 6% of resales were made at a discounted price in Q4, up from 4.5% in the same period last year.
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