The Proposed Tax Plan’s Possible Effect on Homeowners

The new administration plans to make some big tax changes. How will this affect you and your real estate plans?

Want to sell your home? Get a FREE home value report
Want to buy a home? Search all homes for sale

Have you heard the news?

The new administration is looking to revamp the tax code in a way that affects the long-standing mortgage interest deduction (MID). Some people are concerned this might impact home sales and drive down home values.

I believe it will do just the opposite. Here’s why.

First, a bit of background. Under the current system, you can include the interest you pay on your mortgage in your itemized tax deductions. If your itemized deductions turn out to be more than your standard deduction, you save more on taxes.

Currently, about 20% of homeowners who have a mortgage take advantage of the MID for an annual average savings of $2,000 in taxes. Under the proposed new tax plan, the standard tax deduction would almost double. For example, the standard deduction for a married couple would go from $12,600 to $24,000.

If this happens, an estimated 84% of people who currently itemize taxes would simply go for the standard deduction, and this is the part that has some people worried. After all, if people don't take advantage of the MID, won't this decrease the value of owning a home?

Here are two reasons why that won't happen.

First, most people do not buy a home in order to save on taxes. A survey from 2015 confirms this fact. The top reasons why people buy a home include the need for change, an increase in income, or a baby on the way, but there's no mention of saving on taxes. This checks out with what most real estate professionals see in everyday life.

Second, taxes will actually be lower under the proposed new plan. Traditional estimates of the impact of the MID assume other taxes stay the same. In this case, if the deduction goes away, home prices could indeed suffer to an extent.

But under the proposed new plan, the overall tax burden will be less than it currently is.

Under the proposed plan, the overall tax burden would be lessened.

In other words, most people will not lose money because they aren't claiming the MID. Instead, they will gain money by paying less in taxes altogether.

With more disposable income, people will be free to spend more on a home. This will drive sales as well as prices. The fact is, current home prices around Brainerd keep increasing — not because of tax breaks, but because of tight supply.

If you have any questions about the new tax plan and how it will affect the Brainerd real estate market or you’re thinking of buying or selling a home in the Brainerd area, give us a call or send us an email. We’re always happy to help!

Are Rising Interest Rates a Real Cause for Concern?

Should you be worried about rising interest rates? Let me put your mind at ease.

Want to sell your home? Get a FREE home value report
Want to buy a home? Search all homes for sale

Should you be worried about the recent rise in interest rates? Let me assure you, things are much better than they appear.

Yes, rates rose from a low of 3.44% in August to 4.12% for a 30-year fixed rate mortgage. If you took out a 30-year mortgage on a $250,000 house, your payment would be almost $100 a month higher, totaling $35,000 more in interest over the life of the loan. This has people nervous that the market may slow down.

However, the current rise in rates is unlikely to affect the market. Interest rates last year were at an all-time low, and historically, rates have been much, much higher. Just 10 years ago, rates were at 6.34%, and for much of the 1990s, rates hovered around 7% to 10% for a 30-year fixed mortgage. In the 1980s when my parents bought a home, they paid a 16% interest rate for their mortgage!

In a historical context, rates have been much higher than they are right now.

In this historical context, you can see that rates have never been better than they are right now. So what does this mean for you? If you're thinking about buying a home, this is an amazing opportunity to find a great home and some great value.

If you're looking to sell your house, you're in great position to get top dollar. Just last December, we saw sales drop, but not because of interest rates, but because of the lack of inventory. If you're selling your house, it all comes down to supply and demand: there are a lot of people looking to buy a home in the Brainerd Lakes area, but not a lot of inventory available for them.

If you have any questions for me, you'd like to know what your home is worth in the current market, or you're thinking about buying a home, give me a call or send me an email today. I'd be happy to help!