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Will the Luxury Housing Market in San Diego Benefit From the Tax Bill?



Right before Christmas, President Trump and the Republican-controlled Congress passed a major overhaul of the nation’s tax code. Many real estate investors were concerned about changes to mortgage interest and property tax deductions and how this would impact the market for luxury homes.

However, the Tax Cuts and Job Act have not slowed down the real estate market for luxury homes. Instead, luxury home builders like Toll Brothers are reporting little change in the market.

The reality is San Diego residents who own a luxury house stand to benefit from the tax reform. Real estate data reinforces the fact that now is a good time to sell. Read on to learn how the Tax Cuts and Job Act are boosting the market for luxury homes.

Why Were Investors Concerned?

There were two specific changes to the tax code that real estate investors were concerned with. The first was a reduced cap on mortgage interest deduction.

In the past, homeowners could deduct interest on mortgages up to $1 million. However, the tax overhaul reduced this limit to $750,000.

Investors were also concerned by a cap on state and local taxes (SALT) deductions. Prior to the tax reform, property taxes were fully deductible under SALT provisions.

Under the new tax law, SALT deductions are capped at $10,000 per year. According to concerned investors, this cap disproportionately affected states with high property taxes like California.

What Are Industry Experts Saying?

Toll Brothers is one of the largest luxury home builders in the country and operates in San Diego. On its quarterly earnings call, executives with the company provided an update on sales and earnings forecast.

Toll Brothers reported that revenues increased by 28 percent from the year prior. This indicates that home sales are on the rise. Executives with the company also reported that the tax cuts are having little effect on the national market.

Real estate data corroborates the observations of industry experts. For example, the number of houses that sold for $4 million or more increased from 93 to 127. Homes in the $2 to $4 million range saw a substantial increase as well.

What Is Behind the Market Strength?

Despite the changes to mortgage interest and property tax deductions, the luxury real estate market is still strong. This begs the question, why?

There is no question that high-income earners are negatively impacted from an itemized deduction standpoint. However, these additional taxes are offset by various factors.

For starters, the tax reform bill lowered individual income and corporate tax rates. Taxes were also lowered for America’s small businesses.

The American economy is booming and net worth is on the rise. Unemployment is at 4.1 percent and wages are growing. This means that Americans have purchasing power and are using it in the real estate market.

The data is in and the Tax Cuts and Job Act are having a positive impact on the luxury home market. Initial concerns have been alleviated by a strong economy with growth in wages and net worth. As a result, luxury homes in San Diego are selling at a faster pace than the year prior. If you are interested in buying or selling a luxury house in San Diego, please contact us for assistance!

For more on this subject read our recent blog, “Is Now a Good Time to Sell? NAR Says Yes.

Thinking of buying or selling a home in the La Jolla area? As consistent top producers in real estate, Linda Daniels and The Daniels Group are your La Jolla housing specialists. Our team of local experts will ensure that you have a successful real estate transaction. Call us today at (858) 361-5561.