Deductions for property taxes could be on the chopping block
Question: Is it true that President Trump wants to eliminate deductions for state and local taxes? That would be terrible for me and my neighbors because our annual real estate property taxes are already sky-high, and the deductions that we can take for them save us a lot of money when we file our federal returns!
Answer: Yes, it’s true. In a taxreform outline that Trump recently provided to Congress, the president suggested that he wants to keep the current deduction for mortgageinterest payments but would like to eliminate write-offs for most types of local and state taxes. That, presumably, would include those for property taxes.
Whether Trump gets his wish is uncertain, at best. Lawmakers in high-tax states, including those from many Northeast states and California, are already complaining that dumping such deductions would unfairly punish their constituents.
It’s unlikely that any major taxoverhaul bill will be approved this year. But it wouldn’t hurt for you to call or write your local congressional representative and your pair of U.S. senators to insist that they protect your longtime right to deduct state and local taxes on your annual federal tax return. ANOTHER RATE HIKE?
Question: I know that the Federal Reserve Board raised interest rates by one-quarter of one percent in March. Do you think that will be the only rate hike this year?
Answer: Probably not. Most economists say another quarterpoint rate increase could come soon, perhaps as early as June, and many experts believe an additional quarter-point hike could come in late fall or early winter if the economy keeps growing.
The Federal Reserve sets the Federal Funds Rate, which is the interest rate that banks pay for overnight loans from other financial institutions to meet government guidelines. It raises rates to discourage more borrowing, which in turn keeps inflation in check by limiting business expansion and (yes) even home-price increases.
It’s important to understand that most mortgage lenders don’t set the interest rates they charge to homebuyers and refinancers based on the Federal Funds Rate. Instead, they track the rates that the government pays on seven- or 10-year Treasury bonds, because most homeowners move every decade or so.
Now, here’s the bad news: Some financial experts, including economist David Payne of the respected Kiplinger’s Personal Finance magazine, believes the rate on 10-year Treasury notes will hit 3 percent by the end of 2017. Currently, it’s 2.5 percent.
After mortgage lenders slap on their normal profit margin for new loans, Payne says, expect the average 30-year mortgage rate to climb to 4.6 percent by the end of this year. That would be up from about 4.03 percent today, adding roughly $67 to the monthly cost of a $200,000 mortgage and a staggering $24,119 in interest over the course of three decades.