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How does the tax law affect the real estate market?

Lynne Bosomworth

The tax law can have a significant impact on the real estate market, both positively and negatively. One of the most significant changes brought about by the tax law is the introduction of the limit on state and local tax (SALT) deductions. Real estate buyers in high-tax states are more likely to be affected by this measure, as they will face a higher tax bill due to the reduction in the SALT deduction. This may result in decreased demand for high-end properties in these areas, along with a decrease in prices.

Another aspect of the tax law that may have an impact on the real estate market is the change in the standard deduction. With the increase in the standard deduction, fewer people may choose to itemize their deductions, which could make owning a home less beneficial from a tax perspective. For those who do choose to itemize, however, the tax benefits of owning a home may be even greater, as the mortgage interest deduction is still intact.

Despite the potential challenges that the tax law may bring, there are also some positive aspects for the real estate market. One of the most prominent changes is the reduction in the corporate tax rate, which could lead to increased investment in commercial real estate. This could result in more construction projects and higher demand for commercial properties.

Another potential benefit is the increase in the estate tax exemption, which could lead to higher demand for luxury properties as wealthy individuals look to invest in real estate as a means of reducing their taxes. Additionally, the lower tax rates for pass-through entities may encourage more real estate investment from small business owners.

In summary, the tax law is a complex issue that can have both positive and negative impacts on the real estate market. While some changes may reduce demand and prices for high-end properties in high-tax states, others may increase investment in commercial and luxury properties. Real estate buyers and investors should carefully consider the implications of the tax law when making their investment decisions.