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  1. The Housing Market Could Shift Under the New Tax law
  2. Home Buyers and Sellers Are Affected
  3. The New Law Will Affect The Tax Incentives of Owning a Home

The Housing Market Could Shift Under the New Tax Law

  • The economy is booming, take home pay is rising (for some), people are looking toward a brighter future… or are they?
  • The typical catalysts which create a favorable home buying environment may not work this time.    WHY?
  • Rising mortgage rates, a new tax law that reduces the incentives for home ownership, and growing disappointment among first time home buyers who are being priced out of the market.  This all leads to a weakened real estate market.

Home Buyers and Seller Are Affected

  • The National Association of Realtors (NAR), projects about 40% of the year’s sales take place from March through June.  The trend across the country is lower home sales and higher home prices.
  • The sound investment which has been afforded to almost 2/3rds of the middle class is in jeopardy.

The New Law Will Affect the Tax Incentives of Owning a Home.

  • Owning a home is hurt by the tax law changes.
  • Home buyers and home owners are going to be affected by the reduction of the mortgage interest deduction as well as the property tax deduction.
    • The tax overhaul capped the mortgage interest deduction (a qualifying loan is now capped at $750,000)
    • An itemized deduction of up to $10,000 for the total of state and local property taxes and income or sales taxes. This $10,000 limit applies to single and married filers.
  • The new tax law complicates things for Freddie Mac and Mae mortgage loans.
  • The interest paid on a home equity line of credit can only be deducted if the proceeds of the loan are used to make home improvements and the 1st mortgage plus the HELOC do not exceed $750,000.
  • These factors disproportionally affect higher priced houses, which are purchased most typically by the middle class.

The tax legislation will also affect housing via higher mortgage rates.  Big tax cuts combined with government borrowing from global investors will temporarily pump up growth.  The Federal Reserve will most likely raise mortgage rates to temper the inflated economy.

Not all is lost, as there are still some tax incentives which have survived to live another day!

  • The exclusion of gain on the sale of a primary residence remains unchanged with a homeowner qualifying if having lived 2 out of the past 5 years in the home being sold.
  • Additionally, the tax bill retains the current section 1031 Like Kind Exchange rules for real property.  (It however, repeals the use of section 1031 for personal property).

Owning a home has been a good investment over the past half dozen years since housing prices hit bottom after the crash.  This growth in the real estate market will most likely not continue and the strength of the middle class’s investment in home ownership will not be as strong.  The outlook isn’t terrible, but it is certainly disappointing.

This is not intended to be legal advice.  You should contact an attorney for advice regarding your specific situation.




Marcia A. Jacobowitz is a Partner with the firm and practices real estate, business and equine law.  She can be reached by phone at 866-303-9595 toll free or 845-764-9656 and by email.[/column] Facebooktwitterlinkedinmail

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