Displaying items by tag: SALT

Talks were making progress on the state and local tax reductions but they hit a wall this week. Democrats are splitting on the SALT deduction, specifically Senator Bernie Sanders has withdrawn from the previously agreed to plan. Democrats have been in agreement for a 10-year revenue neutral deduction, but Sanders wants to use the SALT deduction to be a revenue generator and use the multiple hundred billion dollars in revenue to pay for vision and dental in a Medicare expansion. The biggest disagreement is what incomes would be eligible for the unlimited benefit; Sanders wants to set the market at $400k while most democrats feel the limit should be $550k. Overall the current SALT write offs in the Build Back Better bill give up to $80k in write offs and this is too much for Senator Sanders.

FINSUM: Holding up the BBB for a SALT deduction is a small grievance. These deductions were revenue neutral which should be a bi-partisan victory.

(New York)

Residents of many high tax states are likely feeling the pinch. The reality of much higher tax bills is trickling through for residents in states like New York, New jersey, Connecticut, Oregon, and California. In the New York area, there seems to be a particular downturn in real estate. Many large suburban properties are seeing their prices slashed. Some selling prices for luxury properties are 50% below what they were just a few years ago. While the downturn is partly a product of changing real estate preferences (i.e. buyers wants smaller urban homes), the new SALT limit is a major headwind.

FINSUM: This important for advisors to pay attention to as many clients may have much less value in their home than they anticipate.

(New York)

Another day, another round of bad news for US real estate. New data on housing starts in February was just released and the results aren’t pretty. The number of new homes under construction fell 8.7% last month, a steep drop. The northeast was hit the hardest, with new starts dropping nearly 30% (thanks SALT limit). The only real gains in the country were in the Midwest, and only in apartments.

FINSUM: Not only did starts fall but new permits also declined, which means the bad run is likely to continue. We are curious how falling yields may boost mortgage issuance.

(Miami)

It seems like wealthy people everywhere are talking about picking up and moving to Florida to get away from the lack of SALT deductions in so many states. However, UBS financial advisors say it isn’t as easy as it is made to sound. Firstly, there are significant residency rules—it is not as if you can just buy a place in Florida and make it your tax home without really leaving your high tax state. And secondly, even for those who do actually want to move, the issue is that the wealthy suburban home market is very soft at the moment, and these residents are having a hard time selling their primary home, which means they are stuck.

FINSUM: Moving is not nearly as simple as the idea of “retiring in Florida” sounds. We do think this will cause a migration, but it will not be a flood.

(New York)

Real estate across northern cities is taking a pummeling right now. There appears to be a significant exodus of wealthy homeowners leaving high-tax northern states like New York and New Jersey in favor of sun belt areas with lower taxes. The big catalyst for the move has been the elimination of SALT deductions above $10,000. Florida, for instance, has no state income tax and no estate tax. Accordingly, Miami, as well as other sun belt cities like Las Vegas and Phoenix, have seen real estate markets holding up well compared to the trend across the north.

FINSUM: Northern states are going to have to adjust (assuming the federal government doesn’t change policy) as the logic is just too simple for people right now: “should I live in a cold place with high taxes, or a warm place with great weather and low taxes?”.