De­duc­tions for prop­erty taxes could be on the chop­ping block

The Palm Beach Post - Residences - - News - David W. My­ers

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.

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