Real estate pro fears lower cap on interest
Greater Boston Real Estate Board CEO Greg Vasil is joining other industry leaders in sounding the alarm about a broad taxoverhaul plan introduced by House Republicans yesterday that would cap the hallowed mortgage interest deduction to the first $500,000 of the loan, down from the current $1 million ceiling. In a conversation with the Herald’s Owen Boss, Vasil warned of the disproportionate impact the plan would have on Bay State homebuyers, especially in Greater Boston, where home prices average more than $741,000.
This is something that I have always feared, especially from this Congress, because in Massachusetts, especially inside of Interstate 495, our greatest assets are our real estate assets ...
What this will do is hamstring people from being able to invest in their properties and increase their value. Say someone buys a house for $800,000, pumps a lot of money into it so that in 10 years they can turn around and sell it for $1.3 million. If they don’t have an incentive to put money back into that property, they could ultimately end up losing money ...
Which means builders and construction workers in Massachusetts should be concerned about this as well, because this will impact a lot of the other aspects of the real estate market — like financing construction projects for houses.
Also, many of the people who live inside 495 — for whom real estate is their greatest asset — use their properties to finance a lot of other things in their lives, especially college education for their kids. This would have an enormous impact on that.
It’s certainly not a good thing for our local market and places like California and parts of Florida, where they also have very high real estate prices. This is really going to hurt the coasts. There are a lot of places in America where no one will bat an eye because properties are pretty cheap, but that’s not the case here ...
The other thing to think about this is what this means for a rising interest rate environment like now. Affordability has been pretty good because interest rates have been so low. But if rates start to rise, and you lose this deduction, people are going to get hit even harder because they’re not going to be able to get to the number that they need to get to make the deal work.
My sense from this whole tax proposal is they’re going to tell people that they’re going to get a lower tax rate but what they don’t tell people is what they’re taking away is going to really impact their tax burden.
At the end of the day, people are thinking they’re going to be getting a deal, and they’re going to end up paying a lot more than they thought they would — one hand giveth, the other taketh away.
I think it’s going to create a really strange setup where people aren’t going to understand exactly what’s happening to them until it’s too late.