NEW TAX LAW: WHETHER TO BUY, RENT, SELL OR STAY PUT

With the new tax bill being implemented and mortgage rates on the rise, our office has received a number of inquiries from both potential sellers and buyers as to whether to (i) sell or stay put and (ii) buy or rent.  While the decision is more of a personal one, and the tax bill (at least as it applies to home-ownership) may not be as favorable to New Jersey and New York as other states, there are definitely still some advantages to buying and/or selling your home.

With regards to buying, while the tax deduction may be limited in certain instances to Ten Thousand Dollars ($10,000.00) for real estate taxes and state income taxes combined[1], the fact is at the end of the day – unlike rent – your monthly payments will eventually go towards your owning a tangible possession.  Contrarily if you are renting an apartment or house, your monthly payment goes to someone or someplace else.  Keeping appreciation of the property out of the equation, part of the payment alone can be looked at (in certain instances) as forced savings.  When you take appreciation into the picture – which more than likely takes place over a thirty (30) year period, you can make money.

With regards to selling, many property owners in this area are concerned about a potential drop in the value of real estate.  This is certainly a concern, but – other factors aside – tax deductions may off-set that.  In the event the economy is strong, people may still be willing to buy at the same or higher rates as before the new tax bill.  One reason is – and not to be cynical –the American Dream (for many) is to own a home with a white picket fence.  You do not always get that when you rent a home and even when you do you are subject to other factors, such as what happens if your landlord doesn’t want to renew your lease before you are ready to move.

Another reason to consider selling is what happens if the real estate market does indeed drop.  There is no telling how far it will go and when it will rebound; so timing the market for most people would be speculative and not a great idea.

That said there are still some advantages in renting.  For example, for many renters (i) maintenance is taken care of by the landlord, (ii) you do not incur any liability or costs for repairs and/or replacements, unless you are the cause of the same, and (iii) you do you do not incur any liability or costs for improvements to the property unless you are the cause of the same.

Based on the foregoing, and as mentioned above, the decision to buy, rent, or sell is a personal one.  I am just not sure it should be based solely on the tax bill.

 

The information in this blog posting is for general information purposes only. Nothing in this blog or associated pages, documents, comments, answers, emails, or other communications should be taken as legal advice for any individual case or situation. The information in this blog is not intended to create, and receipt or viewing of this information does not constitute, an attorney-client relationship.

[1] Please note that this deduction does not apply to mortgages over Seven Hundred and Fifty Thousand Dollars ($750,000.00).

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