It’s no secret that the recent Tax Cuts and Jobs Act will have implications on local real estate markets, particularly with a high concentration of expensive and luxurious homes throughout Philadelphia’s affluent Main Line and suburbs.
Though the bill cut federal income tax rates, it also reduced deductions for people that pay high amounts of property tax each year. In particular, it will affect homeowners of properties with homes over $10,000/year in property taxes. This is the new deduction limit. For a homeowner paying $25,000/year in property taxes, only $10,000 will be deductible.
For this reason, S&P Global ratings mentioned Delaware County specifically as a particularly at-risk area for a “taxpayer rebellion.” The organization pulled both IRS tax return data and U.S. Census data to generate the following lists:
- Counties where a high proportion of residents filed itemized tax returns
- Counties where a high population of residents pay $10,000/year or more in property taxes
- Counties where state and local tax rates are the highest
With less incentive to purchase and a higher burden to own properties in this category, the concern is that decreased demand will influence lower sale prices and, subsequently, lower assessment values. Local governments heavily rely on property tax revenue to maintain current budgets.
As a result, areas that retain high end housing with reasonable tax rates could actually see an increase in demand. The S&P noted more than 700 counties throughout the country that are actually likely to benefit for this reason. It is interesting to see that many of them are rural. For instance, some homeowners relocating from Delaware County to Chester County will find a lesser tax burden while still maintaining a similar quality of life. This could actually increase home prices for these areas.
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