Originally Posted by
liv2ski
by Allan Sloan Oct. 10, 5 a.m. EDT
Daniel Savage, special to ProPublica
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This story was co-published with Fortune.
Lamle’s model isn’t applicable to most people because it works only for taxpayers with a household income of at least $200,000 a year who paid at least $1 million for their homes. But the principle underlying Lamle’s model applies to everyone who owns a home or is interested in owning one. To wit: You calculate the tax-law-caused loss of value by figuring out how much a house’s price needs to fall for buyers’ or owners’ after-tax costs to be the same now as they were before the tax law changed.
“People buying large-ticket items typically focus on after-tax costs of ownership,” Lamle told me. “The amount that many buyers can afford is affected by limits on their financial resources. Therefore, as their tax costs increase substantially because of the loss of tax deductions, they have less money available to pay for homes and to take on mortgage debt.”
At the suggestion of one of my editors, I asked Lamle to use a modified version of his economic model to estimate the tax law’s impact on the value of a theoretical house in the New York City suburb of West Orange, New Jersey, purchased for $800,000 in 2017 by a theoretical family with a $250,000 annual income. Those home value and income numbers are very high by national standards — but middle class by the standards of large parts of suburban Essex County.
Real estate tax on that theoretical house would run about $28,900 a year, according to statistics from the New Jersey state treasurer’s office. That tax used to be fully deductible for federal tax purposes. Now, it’s not deductible at all if you assume that the house’s owners are taking the standard deduction on their federal returns. Or that even if they’re itemizing deductions, they’re paying at least $10,000 of state income taxes, which means they don’t get any benefit from deducting property taxes.
According to Lamle’s calculations, this inability to deduct real estate tax has reduced the home’s value by $138,720, assuming a 5% mortgage rate. At a 4% rate, the value loss is $173,400. (For the math and assumptions underlying these numbers, see his methodology below.) So if the family put up $200,000 — 25% of the purchase price — to buy the house, more than half of that investment has been wiped out.
Obviously, it’s impossible to prove that Zandi and Lamle are right about the impact they say the tax law is having (and will continue to have) on home prices, because there’s no way to gauge the accuracy of their numbers. But the logic is compelling.
Real Estate Taxes of almost $29k a year for a $800k property :eek: Fuck me! I will never say anything bad about what I pay in CA ever.