December 28, 2017

Republican Tax Plan: Screw You, Blue States!

Everyone hates paying taxesThanks to Burbed reader Real Estater for suggesting this as a topic for discussion.

Let’s review the many ways the new tax plan is gunning for Silicon Valley, Hollywood, SF, and all the engines of prosperity California provides.

By limiting SALT (that’s State And Local Taxes) deductibility to $10,000, every homeowner who bought more recently than 1987 just got a kick in the Schedule Effing A. And with that top bracket of 13.3% the most compensated will notice a corresponding Federal tax increase as well.

Next, what will this do to real estate prices? Only $750,000 of mortgage is now deductible. What can you get for around $950,000 (assuming a 20% down payment) in the Bay Area? Certainly not the luxury homes the angrybois on social media imagine. Maybe a crapbox in South San Jose? A condo in Santa Clara? A sleeping bag under the porch in Menlo Park?

And what will happen when the powerhouses of the US economy start fizzling as blue states start having serious budget issues?

There’s plenty to discuss, so have at it.

Comments (14) -- Posted by: madhaus @ 6:31 am

14 Responses to “Republican Tax Plan: Screw You, Blue States!”

  1. gallileo Says:

    Everyone knows that Bay Area real estate always goes up, so the only effect the new tax-scheme will have is to push prices up more quickly.

    More seriously, depending on how deeply into the AMT you are, these changes may not affect you. Many Silly Valley people are, especially those in Menlo Pork and Shallow Alto.

    There are several tax-change calculators on-line, here is one:

    https://www.marketwatch.com/story/the-new-trump-tax-calculator-what-do-you-owe-2017-10-26

    Many one-percenters will see only minimal changes due to the AMT making all of the rest irrelevant–and who in the Bay Area isn’t a one percenter?

    So it is hard to predict exactly what it will do to home prices.

  2. madhaus Says:

    I think we’re going to see a cratering (or at least a sagging) in the $1-2M range. Below that most if not all of the mortgage is covered, and above it, you’re comfortable enough to pay cash if you have to.

    We shall see, but you raise an excellent point about AMT.

  3. nomadic Says:

    Thanks for the link, gallileo. Looks like I’ll be getting a nice cut thanks to the changes in AMT. I didn’t get any benefit from property tax deductions anyway. There are a lot of people in Silicon Valley in the same income range, but most of them probably don’t realize the deduction cap doesn’t affect them (so the change might deter a few from buying). IMO, the only wild card is the lower cap on mortgage interest deductions.

    So, in spite of the tax savings for me, I still think this bill is very wrong and bad for the country.

  4. Real Estater Says:

    I hope all of you prepaid your April property tax payment by Dec 31st 2017. If so the Republicans will not be able to take any extra money from you.

  5. K Says:

    I’ve been lurking on this site since the late 2000s. The entire point, as I understand it anyway, is how Bay area real estate is crazy high due to out of control bubble speculation – making it near impossible for ordinary folk to buy in. So here’s you’re chance, right? With any luck this will burst the bubble. Million dollar shacks becoming more affordable, two million dollar “starter homes” the same.

    Here’s a thought – why not sell now, get the best price you can and move to someplace actually affordable and retire?

  6. burbed Says:

    Isn’t the best part of owning something knowing that someone else can’t have it?

  7. ed Says:

    At this point I have to assume many people who’ve bought recently are stretching significantly. We make a fairly good income. Enough to where buying 5 years ago made sense. But now? I have no clue who can afford these million-dollar+ rancher homes in palo alto and elsewhere.

    Even in my piddly little east bay city the homes down the street from us- which are nothing special- are going for a million bucks, which is obscene.

    when the next recession hits- which I feel will be any day now- the truth will come out and we’ll see a lot of foreclosures, especially in the pricier areas

  8. SEA Says:

    Oh Real Estater it’s so nice to see you haven’t given up, and at the same time, it’s nice to see that you’re not a fan of the screwing California ‘owners’ are getting by the Republicans. To keep their ruby red base, I do suspect that the legislation was carefully crafted to burden blue states in favor of red states.

    Recall, and you can go back to my post about a decade ago, and you will see that I have always pointed out that–

    If you’re renting, 100% of the property taxes are deductible. The repairs are too, although some may need to be capitalized.

  9. ChrisF Says:

    Um, those of us living in low tax states don’t feel that you are getting “screwed,” but rather that you’re being asked to pay your fair share after exploiting a major loophole for years.

    We’re fine with you taxing yourselves to build your high speed railroads to nowhere. Or whatever it is you do with your tax receipts.

    But why does that make you feel entitled to pay less federal tax than those of us who live in states that live within our means?

    And I’m sorry. If you are living in a house that’s within spitting distance of a million, you’re wealthy. I don’t really care if your six figure income barely qualifies you for that loan. You’re wealthy. Middle class folks don’t live in million dollar houses.

  10. nomadic Says:

    RE, if you did your own taxes, you’d know pre-paying property taxes doesn’t do squat. Unless your income is much lower than you like to pretend. AMT cancels out the property tax deduction for a lot of us in the valley.

    Also, ChrisF, that’s why claiming people here don’t pay their “fair share” is bull. The tax plan is screwing those with lower incomes here who can least afford it, while the rest of us are breathing a sigh of relief from the higher ceiling for AMT. As long as the middle class is happy (and distracted) that those in the next income band above them have tax breaks taken away, the politicians can allow the super-wealthy to skim the cream off the top and keep income disparity increasing.

  11. Real Estater Says:

    nomadic,

    A deduction is better than no deduction. You don’t need to be a CPA to understand that. My income is indeed lower after a tax deduction!

  12. nomadic Says:

    RE, the point is there is no deduction. Zero. So no point paying three months early.

  13. Real Estater Says:

    Nomadic,
    Property tax can offset your rental income. Without the deduction you will pay property tax and then pay income tax. It’s better to pay some AMT than to be unsheltered.
    For a person with multiple streams of income, one needs to find ways to shelter each stream. AMT is not real estate specific and can be minimized with the various approaches unrelated to real estate. For example: EV tax credit will reduce a chunk of tax while putting a new car in your driveway. Putting money away into a tax sheltered retirement fund will also reduce your tax burden without aggravating AMT.

  14. madhaus Says:

    Property tax is only deductible if you’re renting out the property. For many readers of this site, their primary residence is the only property they own. And there’s another big chunk who are renting; for them, reading about Bay Area real estate must be either aspirational lifestyle or exquisite torture.


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