Location used to be the most important thing in real estate, but it may now be the new U.S. tax reform law and how, or if, it will affect buying, selling and investing in real estate markets.

Advisors come down on both sides of that debate: Tax reform will either have a huge impact on real estate or will not be a factor compared with other economic changes occurring in the world. It’s too early to tell, and the impact will not be felt until at least late spring or when people start filing 2018 tax returns.

Leyla Z. Morgillo, an advisor at Madison Financial Planning Group in Syracuse, N.Y., says some clients are already changing plans as a result of the Tax Cuts and Jobs Act signed into law by President Trump in December. “We are absolutely seeing the tax law changes affect our clients and their real estate decisions,” Morgillo says. “One couple who are clients have found themselves shockingly unable to sell their home in the Washington, D.C., area in a very sought-after building. The property sat on the market for months while buyers were frozen waiting for clarity around the tax bill to emerge. Now that the tax changes have gone into effect, they are worried it will continue to be a slow seller’s market. They have decided to pull their property off the market for a few months to see what the response is to the tax reform. In an area that has both high home values and high state and local taxes, the impact on the property value and on the ability to sell could be considerable.”

The new law limits the combined deduction for state and local taxes, including property taxes, to $10,000. In high tax states, that limit can easily be exceeded.

In addition, the new law changed the rules for the mortgage-interest deduction, which was initially enacted to make home buying more affordable. For new mortgages, only the interest on the first $750,000 of a home mortgage is deductible under the new law. Buyers in cities where median home prices easily exceed that amount, such as San Francisco and New York City, are most likely to be squeezed. (StreetEasy reports the median resale price for homes in Manhattan in the fourth quarter was $1.67 million., while Paragon Realty Group reports median sale prices in San Francisco were $1.5 million.) Interest on loans used for vacation homes and for some home equity loans is no longer deductible.

Zillow, a home buying website, says home values in the United States went up 6.7% in 2017 and predicts they will rise 3.2% during 2018 as the tax reform changes settle in.

Kyle Brownlee, CEO of Enid, Okla.-based Wymer Brownlee Asset Management, which serves mostly high-net-worth clients, says the tax changes may have a dampening effect on the real estate market as people realize deductions are changing.

“Within six months, we will have greater clarity on what the tax act will do to the real estate market. For our clients, tax issues are concerning but not life changing,” he says. “But we have been proactive in identifying our clients most impacted by tax reform and to help them handle the mortgage limitations and state tax deductions.”

Brownlee says clients have not yet asked a lot of questions of the firm, but he predicts that will change as people start thinking about buying and selling homes in the spring. The firm may advise some clients to pay down real estate debt if they have funds available rather than buying more or larger property.

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