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NYC Real Estate Market Divided on Sweeping Tax Reform

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While the popular reaction to President Trump’s sweeping tax reform and accompanying cuts has been positive, the New York City real estate market appears to be of two minds.

Those who deal in commercial real estate are ecstatic about the cuts in store for corporations and pass-through entities.

At the same time, however, on the residential side – especially for those operating on the city’s periphery – prospects for the year ahead include tax hikes and what The Real Deal has termed “a trickle-down effect” that some economists have warned could harm the residential market as well as local economies. The new tax law caps the amount of state and local taxes that homeowners can deduct from their federal income tax.

“Everything that I’m seeing is extremely positive to commercial real estate,” said Marcus and Millichap’s John Krueger, a commercial sales broker who recently sold a $73 million Brooklyn portfolio, to Real Deal.

National Association of Realtors (NAR) President William E. Brown, a second-generation Realtor from Alamo, CA. and founder of Investment Properties, criticized the tax reform plan late in 2017. “We have always said that tax reform – a worthy endeavor – should first do no harm to homeowners. This tax framework misses that goal. This proposal recommends a backdoor elimination of the mortgage interest deduction for all but the top 5 percent who would still itemize their deductions.”

“When combined with the elimination of the state and local tax deduction, these efforts represent a tax increase on millions of middle-class homeowners,” Brown continued. “That tax increase flies in the face of a reform effort ostensibly aimed at lowering the tax burden for Americans. At the same time, the lost incentive to purchase a home could cause home values to fall.”

He added, “Plummeting home values are a poor housewarming gift for recent homebuyers and a tremendous blow to older Americans who depend on their home to provide a nest egg for retirement.”

Rep. Carolyn Maloney, a Democrat from Manhattan, told the Real Deal she was “extremely upset about this tax bill,” adding, “It’s like a war against New York City. The loss of deductibility hurts New York and other states that contribute the most to the economy and the U.S. Treasury… It’s a whammy to affordable housing.”

Others are less apocalyptic. “Real estate does great,” Daniel N. Shaviro, a professor of taxation at New York University Law School and a congressional staff member who helped write the 1986 tax overhaul, told Forbes. “It’s hard to imagine what they might have asked for that they don’t have.”

By: Dan Gregory

 

 

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