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GOP Tax Bill Reform and San Francisco Real Estate

December 30, 2017

Well, at least, the confusion is over. We now know what is in the final GOP Tax Bill of 2017. Or do we? I’m fairly certain that the CPAs and other tax advisors will need to spend many hours digesting the bill and figuring out how to make it work for their clients. In the meantime, let’s lay out the quick and dirty of how the tax bill will affect San Francisco Bay Area real estate and today’s homebuyers and sellers.*

Final GOP Tax Bill and Real Estate: What’s Changing?

The SALT Deduction (State and Local Tax Deduction)

Until last week, tax payers could deduct an unlimited amount of state taxes (property, income, sales) against their federal return. This was very GOOD news for residents of high-tax states and cities like California and, in particular, San Francisco.

Now, there is a $10,000 limit to the deduction. This is $10,000 per individual AND per couple. This is very BAD news for those same residents of high-tax (read high social service) areas.

The Mortgage Interest Deduction

A long time ago, in a tax code now far, far away, homeowners could deduct any interest they paid on home loans and mortgages up to $1,100,000 ($1m for mortgage, $100k for home equity). Now, there is a $750,000 cap for individuals and married couples. I’ve got a call out to our CPA to see if two unmarried individuals who co-own and co-habitate would each get $750,000. Divorce court, anyone?

Final GOP Tax Bill and Real Estate: What’s Not Changing?

The Home Sale Exclusion

It was on the chopping block (what wasn’t?), but in the end, the final tax bill does NOT change the primary residence home sale capital gains exclusion.

What’s the home sale exclusion, you ask?

  • Exemption from capital gains tax when you sell a home of up to $250,000 per individual and $500,000 per couple if you meet the following criteria.
    • It’s your primary residence.
    • You’ve owner-occupied the home for at least two of the past five years
  • There is no limit on the number of times you can benefit. Move every 2 years if ya like!

What Does It All Mean for San Francisco Real Estate?

Frankly, it’s a bit too soon to tell how the GOP tax bill will affect San Francisco real estate, but I will say that it’s better to know than be in a state of confusion. The back and forth and what ifs were stressful, weren’t they?

Ultimately, real estate is hyper-local and our market is affected by variables way beyond Washington. San Francisco is a desirable place to live yesterday, today and tomorrow. My guess is that the effects of the tax bill on San Francisco real estate will be minor. There is just such limited supply and high demand. We’re in the tail end of the seller’s market anyway and this may slow the pace of appreciation, but when home values have doubled in the past few years, is that so bad?

* Danielle Lazier + Associates is a licensed real estate broker and not qualified to give tax or legal advice. Please always check with your tax advisor.

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