[youtube http://www.youtube.com/watch?v=x71jwJIr8cE] Following this month's election, the political right is experiencing a drastic shift in fiscal policy. Speaker John Boehner warned members of his party to deter from the types of "nasty showdowns" the world has had to witness these past two years. The Republican Party, in other words, is preparing to cave in and finally compromise. President Obama has made it clear that he will most certainly tax the wealthy and veto any bill that attempts to extend the tax rate for those earning $250K+. Surely Republican party members are gritting their teeth during collaborative discussions on tax reform. But the question remains: how will the election impact the real estate industry? Lawrence Yun, the chief economist for the National Association of Realtors, believes these tax reforms will not impact the real estate industry in the short term, as the housing market will probably continue its recovery. For the long term, however, that may be a different story. There are five top "tax expenditures" that may serve as a relief for a small portion of our nation's 1.1 trillion dollar deficit, according to the Joint Committee on Taxation via the Washington Post.
- Exclusion for employer-provided health-care - 13 percent
- Home mortgage interest deduction - 9 percent
- Preferential rates for dividends and capital gains - 8 percent
- Exclusion of Medicare benefits - 7 percent
- Net exclusion of defined benefit pension contributions/earnings - 6 percent
And according to an Inman News article,
both the left and right will work on the 1.1 billion dollar deficit by closing tax loopholes. There is a greater chance, however, that the real estate industry will be the most affected tax expenditure than say, the healthcare benefits provided by employers or Medicare benefits.
"...it's probably time to kiss the mortgage interest deduction -- at least as we know it today -- goodbye." - ROBERT HAHN, Inman News
In an interview with NAR's director of digital engagement, Nobu Hata, Yun states that taxing the wealthy and eliminating the home mortgage interest deduction could earn $80 million dollars in revenues. More specifically, it would bring down the 1.1 trillion dollar deficit to $940 billion or so, resulting in a higher demand for real assets. Down goes the dollar even further. So what would be our advice to you, potential home buyer? If you have enough cash to invest in a property, do it. As Hahn states it more bluntly, "Anyone who's still got enough cash for a down payment should immediately buy a house on as long-term a fixed-rate mortgage he can get, since he'll be repaying the loan with devalued dollars and house prices have nowhere to go but up, in dollar terms".