For most people, their home is their largest investment. As a local Realtor, I am on top of all the news and information that affects real estate. My intention is to provide you a source that shares useful information for you to use in making decisions about your real estate holdings.
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Who Owns a Half Million-Dollar Home? If You Have Been On The Fence About Moving ........
After the release of the tax reform legislation from the House, last week’s question was “who will be affected by the new bill?”
One of the key elements of the tax reform is the proposed capping of the mortgage interest deduction at $500K. Under the current tax framework, taxpayers who own a home are able to reduce their taxable income by the amount of interest paid on the loan, which is secured by their principal residence. Interest is deductible on only the first $1 million of debt used for acquiring, constructing, or substantially improving the residence ($500,000 for single individuals if filing separately), or the first $100,000 of home equity debt regardless of the purpose or use of the loan. The new tax reform legislation allows homeowners to take the deduction on their first $500,000 of mortgage debt, half of the current threshold. The new threshold will affect only mortgages on purchases made after the law is in force (but will not include refinancing). Thus, a new homebuyer will be able to deduct from his taxable income up to $15,475 under the new proposed tax framework, while he could deduct up to $30,950 under the current tax framework. Although $500K seems to be a decent amount of money, is it enough to buy a home in all areas in the United States?
Since all real estate is local, we calculated the share of homes with a value higher than $500K by Congressional District. Based on the data, on average, 15% of homes with a first mortgage are worth over half a million dollars across the congressional districts. The share varies from 0.1% (13th District, Ohio) to 94% (14th District, California). Actually, one out of every two homes is worth over half a million in several districts in the following states: California, Connecticut, District of Columbia, Hawaii, Massachusetts, New York, Virginia and Washington.
Furthermore, we should bear in mind that the limit of $500K is not indexed to inflation, causing its value to diminish even further over time.
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