The best I can tell there is one provision of the new tax plan that is a done deal. Surprisingly it doesn't seem to be getting that much press coverage. It's a change in the requirements for avoiding a capital gains tax on the first $500,000 (for a couple) of gain on the sale of a home. Under the current law you need to have lived in your home for 2 out of the last 5 years. However, under both the senate and house bills they have revised that condition to 5 of the past 8 years. Since both versions are in agreement I assume it's a done deal.
Now, Attom Data Solutions tracks how long the average home seller has been in their home. The number has been rising for like 9 years and is currently around 8 years.
However, that means that plenty of people have been in their homes for 5 years or less. Anecdotally I can tell you that today it's a significant percentage. According to the NAR's 2016 Profile Of Home Buyers And Sellers 21% of home sellers have been in their home for 2 - 5 years and would therefore be affected by this change in the tax law.
So what do you think is going to happen when this new tax law goes into effect? I wouldn't imagine that it's going to change the behavior much of people who want or need to sell 2 years after they purchased the property. However, if you've been in your house 3 or 4 years you might suddenly be much more motivated to wait another year or two to avoid any potential capital gains tax.
In other words, the average tenure of a home seller is going to rise even further and with people staying in their homes longer there will be fewer homes for sale. If the average home sells every 8 years that basically means that 12.5% of the housing stock is turning over every year. If that number goes up to 9 years that percentage drops to 11.1% and home inventory drops.
In addition, it's been pointed out that the proposed cap on the mortgage interest deduction could also cause some people to stay in their homes longer. Homeowners that currently owe more than $500,000 on their mortgage would be grandfathered under the current proposal. But if they sell that home and need a similar mortgage they will not be able to deduct the interest on the new balance above $500,000. Consequently, this is another disincentive to moving.
Given how low home inventory already is this is the last thing that home buyers need. Then again it's good news for people that already own homes and have been or plan on being in them for 5 years or more.
#TaxPlan #HomeSale #HomeSelling
Gary Lucido is the President of Lucid Realty, the Chicago area's full service discount real estate brokerage. If you want to keep up to date on the Chicago real estate market, get an insider's view of the seamy underbelly of the real estate industry, or you just think he's the next Kurt Vonnegut you can Subscribe to Getting Real by Email using the form below. Please be sure to verify your email address when you receive the verification notice.