RESEARCH FACT SHEET Tax Cuts and Jobs Act

Transcription

1 RESEARCH FACT SHEET 2017 Tax Cuts and Jbs Act Abstract This analysis cntains statistical and research infrmatin prepared by the Research and Ecnmic Department at the CALIFORNIA ASSOCIATION OF REALTORS relating t the 2017 Tax Refrm Prpsal circulating thrugh the United States Cngress. This includes statistics n the impact f the tax refrm plan t individual husehlds in Califrnia, the incentive t becme a hmewner, and the impacts t the brader husing market in the State. Jrdan Levine, Senir Ecnmist jrdanl@car.rg

2 Table f Cntents (Ctrl + Click t Navigate) Key Pints frm Prpsal... 1 Lwer individual tax rates... 1 Other persnal incme tax changes... 1 Crprate tax changes... 2 Key Questins... 2 Impacts t Hme Sales and Prices w/$750k MID Cap... 2 Effect n Primary Residences... 3 Effect n Secnd Hmes... 3 Effect n HELOCs... 3 IRS Data n Current Utilizatin f MID + SALT... 3 Tax Year 2014 Califrnia Cmparative Statistics... 3 Tax Year 2015, Califrnia State Tax Data frm IRS Statistics n Incme... 4 Califrnia Mrtgage Interest Deductins by Incme Level... 4 Califrnia State Incme Tax Deductins by Incme Level... 4 Key Stats n Hmewnership... 5 Impact f a Hme Sale... 5 Messaging n Prpsal... 5 Messaging t REALTORS (WHY THEY SHOULD OPPOSE)... 5 Messaging t hmewners (WHY THEY SHOULD OPPOSE)... 6 Messaging t cnsumers (WHY THEY SHOULD OPPOSE)... 6 Internal Resurce Allcatin... Errr! Bkmark nt defined. Archived Analysis... Errr! Bkmark nt defined. Impacts t Hme Sales and Prices w/$500k MID Cap... Errr! Bkmark nt defined. Central Valley Data... Errr! Bkmark nt defined.

3 Key Pints frm Prpsal Lwer individual tax rates 0%, 10%, 12%, 22%, 24%, 32%, 35%, and 37% Incme Cut-ffs Marginal Tax Rate Individual Married, Jint Head f Husehld 10% $9,525 $19,050 $13,600 12% $38,700 $77,400 $51,800 22% $70,000 $140,000 $70,000 24% $160,000 $320,000 $160,000 32% $200,000 $400,000 $200,000 35% $500,000 $1,000,000 $500,000 37% Over $500,000 Over $1,000,000 Over $500,000 Incremental Taxes Marginal Tax Rate Individual Married, Jint Head f Husehld 10% $0 $0 $0 12% $953 $1,905 $1,360 22% $4,454 $8,907 $5,944 24% $11,340 $22,679 $9,948 32% $32,940 $65,879 $31,548 35% $45,740 $91,479 $44,348 37% $150,740 $301,479 $149,348 Other persnal incme tax changes Nearly dubles standard deductin t $24,00 frm $12,700 Can deduct up t $10K in sales, incme, and prperty taxes Expands child tax credit frm $1,000 t $2,000 (families under $400K) Mrtgage interest deductin limited t interest n new mrtgage principle f $750,000. Current lans up t $1 millin are grandfathered Maintains deductibility f mrtgage interest n a secnd hme. Maintains deductibility f 401K cntributins Eliminates deductibility f interest n hme equity lans/lines f credit. Unless prceeds are used t substantially imprve the residence. Dubles size f exemptin n the estate tax. Repeals deductin fr persnal exemptins. Repeals mving expense deductin. Retains deductibility f student lan interest. Retains capital gains exemptins perid f 2 years. Maintains 1031 like-kind exchanges fr real estate nly Tax Cuts and Jbs Act Research Fact Sheet 1

4 Crprate tax changes Lwer crprate tax rate f 21% Immediate expensing/write-ff f new equipment Maintains expensing/write-ff f interest n lans Eliminates crprate AMT Key Questins Impacts t Hme Sales and Prices w/$750k MID Cap Hme prices wuld drp an average f 6.3 percent in the shrt term, with sme price ranges drpping mre than thers. Abut 4.0 percent drp in hme prices wuld be due t the lss in tax incentive as a result f higher standard deductin f lwer MID cap. Anther 2.3 percent decline in hme prices wuld be due t the inability t deduct state and lcal prperty tax. Prperties currently priced belw $500k wuld experience a 10 percent drp, as many buyers wh purchase at r belw this price range are mre likely t take advantage f the increase in the prpsed standard deductin, and wuld nullified tax benefits f the MID deductin and the prperty taxes deductin. The decline in price is nt as severe as that f the previusly prpsed tax refrm plan, as the current prpsed plan allws up t $10,000 state and lcal prperty taxes deductin instead f eliminating the deductin cmpletely. The prpsed tax refrm wuld als lead t fewer sales transactins as the tax incentives f being a hmewner vanish fr many wh want t purchase a prperty. Existing hme sales wuld decline by 4.4 percent if the prpsed tax plan were t be implemented, as the cst f wning a hme increased and fewer buyers purchased prperties fr tax saving purpses. Apprximately 22,550 hme sales wuld be lst in the year fllwing the implementatin f the prpsed tax plan. The decline in hme value wuld als lead t hmewners reluctance t put their prperty up n the market and further tighten up the husing supply cnditin in Califrnia. An estimated 1.5 percent f the inventry wuld be lst in the first year after the implementatin f the prpsed tax plan. The eliminatin f the MID deductin fr secnd hmes wuld lead t a decline in hme prices f 3.3 percent in the secnd hme market and a 2.3 percent in sales activity in the verall secnd hme market. The effect n the market as a whle (including primary hme sales), hwever, wuld be minimal. The requirement f living in a hme fr five years instead f tw in rder t qualify fr capital gain tax exclusin n a primary hme sale wuld affect rughly ne sixth f all hme sales, as 15 percent f sellers sld their hmes after living in them fr 2-4 years. The prpsed tax refrm plan wuld lead t sme if nt all f them delaying their selling prcess t avid paying capital gain tax. This culd lead t further supply shrtages in the husing market Tax Cuts and Jbs Act Research Fact Sheet 2

5 Effect n Primary Residences Rughly 376,389 mrtgages were riginated in Califrnia in ,887 / 72.8% had UPB under $500K 102,512 / 27.2% had UPB f $500K r mre 92,126 / 89.9% f thse were primary residences 10,386 / 10.1% were fr 2 nd Hmes r Rental Prperties, sme f which wuld be affected Of the 102,512 mrtgages effected each year: 82,844 r 80.1% were under the current cap The remaining 19,668 wuld see their cap further reduced frm $1M t $500K/year At $750K, 32,161 / 9.9% f mrtgages were abve that level (primary residences nly) 291/124 / 90.1% wuld nt be affected by the cap Rughly 15% f hme sales in 2017 were at $937,500 r mre (which is the price yu d need t stay belw at 20% dwn t avid exceeding $750K in principal) Effect n Secnd Hmes Census Bureau estimates there are 381,000 hmes kept vacant fr seasnal and recreatinal use. Mstly vacatin hmes CAR estimates that 54.3% f all secnd hmes in CA were bught with a mrtgage Based n 2017 sales figure, that is 11,473 secnd hme sales Using Census data, we estimate that there were 270,897 2 nd hmes with a mrtgage in CA in 2016 CAR estimates that secnd hmes represent 4.1% f all hme sales each year. In sme cunties, the percentage f secnd hmes is as high as 80% Overall, rughly 15,000 hmes sales annually are fr secnd hmes which will n lnger be able t deduct their interest n these lans. Effect n HELOCs We estimate there are 3,455,122 hme equity lines f credit Will nly be deductible if it is used fr significant imprvements t the hme Nearly half f Califrnia s wner-ccupied husing stck uses this surce f financing, which verwhelmingly ges back int their hme r int ther big-ticket items like their educatin. 1 IRS Data n Current Utilizatin f MID + SALT Tax Year 2014 Califrnia Cmparative Statistics A higher percentage f Califrnians itemize than in the U.S. (33% vs. 29%). This ranges frm nearly half in Marin t as lw as 16% in Imperial Cunty. 3 ut f 4 itemizers have mrtgage interest t deduct, s it is a big player in catapulting peple ver the standard deductin. Nearly ¾ f all AGI is frm peple wh itemize, s will have a big impact n ur tax base. Mre than $52 billin in mrtgage interest deducted in Assuming a 25% tax rate, that s ~$13B in tax savings r $2,206 per itemizer in extra taxes. That s abut $1 ut f every $4 deducted that year Tax Cuts and Jbs Act Research Fact Sheet 3

6 Tax Year 2015, Califrnia State Tax Data frm IRS Statistics n Incme Ttal itemized deductins: 6,119,910 return / $225,225,032,000 deductins 34.6% f returns / 100.0% f deductins State and lcal incme taxes 28.3% f all returns 5,002,300 returns / $79,921,882,000 deductins 81.7% f itemizers / 35.5% f all itemized deductins Real estate taxes 27.2% f all returns 4,817,470 returns / $28,313,351,000 deductins 78.7% f itemizers / 12.6% f all itemized deductins Hme mrtgage interest paid 24.2% f all returns 4,279,210 returns / $52,562,884,000 deductins 69.9% f all itemizers / 23.3% f all itemized deductins Charitable cntributins 28.6% f all returns 5,054,920 returns / $31,545,965,000 deductins 82.6% f all itemizers / 14.0% f all itemized deductins Califrnia Mrtgage Interest Deductins by Incme Level 47.2% f filers wh deduct mrtgage interest earn under $100K/year 36.8% f all deductins fr this categry Anther 34.2% earn $100-$200K/year 34.9% f all deductins 21.5% earn $200-$500K per year 21.5% f all deductins in this categry Just 3.6% earn $500K/year r mre 6.9% f all deductins Mrtgage Interest Paid Number f Returns Amunt ($000s) Avg. Deductin Ttal, All Incmes 4,279,210 $52,562,884 $ 12,283 By Incme: Under $25, ,690 $2,167,871 $ 9,317 $25,000-$50, ,750 $4,387,556 $ 8,996 $50,000-$75, ,560 $6,099,361 $ 9,361 $75,000-$100, ,880 $6,671,211 $ 10,313 $100,000-$200,000 1,461,870 $18,350,586 $ 12,553 $200,000-$500, ,210 $11,285,026 $ 17,490 $500,000-$1,000, ,210 $2,365,152 $ 22,696 $1,000, ,020 $1,236,121 $ 25,217 Califrnia State Incme Tax Deductins by Incme Level 2/5 f filers (42.1%) wh take CA Incme Tax Deductins earn under $100K/year 2017 Tax Cuts and Jbs Act Research Fact Sheet 4

7 8.5% f all deductins fr this categry Anther 37.1% earn $100-$200K/year 19.4% f all deductins fr this categry 16.7% earn $200-$500K per year 23.0% f all deductins in this categry 4.1% earn $500K/year r mre 49.0% f all deductins in this categry State Incme Tax Deductins range frm an average f $1,756/year fr incmes under $50K/year t as much as $436,362 fr incmes ver $1M/year State Incme Taxes Number f Returns Amunt ($000s) Avg. Deductin Ttal, All Incmes 5,002,300 $79,921,882 $ 15,977 By Incme: Under $25, ,510 $255,709 $ 2,104 $25,000-$50, ,990 $807,813 $ 1,756 $50,000-$75, ,900 $2,113,430 $ 2,924 $75,000-$100, ,310 $3,612,981 $ 4,520 $100,000-$200,000 1,857,920 $15,523,363 $ 8,355 $200,000-$500, ,990 $18,414,086 $ 22,027 $500,000-$1,000, ,470 $8,561,897 $ 63,671 $1,000, ,200 $30,632,603 $ 436,362 Key Stats n Hmewnership In 2016, the median net wrth f a hmewner was $231,400, cmpared t just $5,200 fr a renter, accrding t the Federal Reserve. Impact f a Hme Sale Each buyer spends rughly $4,500 in direct spending n average, when they purchase a hme in Califrnia accrding t an NAR Impact Analysis frm NAR estimates that there are rughly $21,000 in ttal spending fr each transactin when yu include all f the multiplier effects. If 22,550 hme sales are lst, that culd cst the Califrnia nearly $500 millin in lst ecnmic activity in additin t the lst hme sales and tighter inventry. At the Califrnia state level, real estate industry accunted fr $501 billin r 20.2% f the Grss state prduct in Messaging n Prpsal Messaging t REALTORS (WHY THEY SHOULD OPPOSE) Caps the MID 2017 Tax Cuts and Jbs Act Research Fact Sheet 5

8 New MID Cap applies t new mrtgages, existing mrtgages grandfathered Discurages hmewners frm selling, further cnstricting inventry. 90% f Americans wn t benefit frm hmewnership tax incentives Limits prperty tax deductibility & state incme tax deductibility. Hmewnership allws the middle-class t build a nest egg. Califrnia is already a dnr state. Paying mre t Uncle Sam than we get back. Messaging t hmewners (WHY THEY SHOULD OPPOSE) Caps the MID. Yu wn t be able t deduct all the interest yu pay. Lse yur deductin when yu mve, and therefre yur ability t determine when is best t sell r buy a new hme, even if yu need t mve t take a new jb. Limits prperty tax deductibility & state incme tax deductibility. Wn t be able t deduct interest n hme equity lan unless used fr significant imprvements. Messaging t cnsumers (WHY THEY SHOULD OPPOSE) Keeps yu frm building a nest egg. Hmewnership is the hw middle-class families build wealth and savings they can use BEFORE retirement. Yu can t take frm yur 401K t help pay fr cllege, but yu can take a hme equity line. Many small businesses wn t benefit. Lts f small businesses that are classified as prfessinal service prviders, wn t be able t get the lwer crprate tax rate. Califrnians already pay mre than their fair share t the feds Tax Cuts and Jbs Act Research Fact Sheet 6