More on the Proposed Tax Reform and California Real Estate

Real property owners in California should be concerned about the current proposed tax reform. The federal government is quietly taking away our previously sacred mortgage interest deduction, taking away state tax deductions, medical expense deductions, and limiting the property tax deduction to $10,000. An argument might be that the mortgage interest deduction is still there except that it is limited to interest on a mortgage up to $500,000. Let's think about that. The standard deduction is going to be raised to $24,000. What's the interest on a $500,000 loan at 4%? It's $20,000. That's less than the standard deduction. It would be better to take the standard deduction. It seems we are losing the other deductions like the state tax deduction. Even if we deduct property taxes, the advantage seems to be so small that it could be a push due to the increased cost of doing an itemized a tax return. With this tax reform, having a mortgage on your primary residence doesn't generate any tax advantages.

Are we screwed? I think that smart finance people will find ways to minimize their taxes. If this tax reform comes to fruition, the demand and prices for single family home sales might decrease a few percent. This isn't necessarily doom and gloom for the real estate industry. Even if the incentive to buy disappears, people will still need homes to live in. If that demand increases, based on simple economics, then the price for rentals will increase. Mortgage interest on rentals will still be deductible as an expense towards rental income. The savvy real estate investor should see this period of change as a great opportunity.

Another option, as a corporate business owner, is to own the residence within the corporation and rent it back to yourself. The corporation claims it as a rental and deducts the mortgage interest accordingly. If I can dream up these scenarios in a day or two, I have confidence that investors will find ways to optimize their tax liability. Taxes and the real estate market may be going through a near term change, but don't look at it as a problem. It is an opportunity.

Rodney Smeester
Realtor ®
BRE # 01925202

Ph: 805 453 6000



...Caravan, Santa Ynez, November 7, 2017: Several homes impressed me this week.

1415 Ribe Road is located in Solvang on 10 acres. This 4 bedroom/ 3 bath house has tremendous views. For those of us who desire horse facilities, there is a separate entrance to the four stall barn and assorted horse facilities. It's listed at $1,999,000.

3322 Manzana Street in Santa Ynez is a cute 4 bedroom/ 4 bath charmer located on a secluded cul-de-sac. It's listed at $619,000. It won't last long at this price.

1148 Oak Glen in Santa Ynez is the last home that stands out this week. It's located in the desirable Skyline Park water district. It's a 4 bedroom/ 3/12 bath home on .9 acres. It's listed at $1,895,000.


If you would like to get a free market analysis of what your home is worth or if you would like to see any of these homes, please contact me. It would be my pleasure.

For more information please visit us at Central Coast Landmark Properties.