Which US States Will Be Hardest Hit From Removal Of SALT Deductions

When it comes to the state of the housing market in 2018, all eyes are on tax reform and specifically whether it will be encourage or damage the ongoing housing market recovery.

To some, tax reform is supportive of the housing market as it increases disposable income for many households. However, on the other hand, it reduces the incentive for homeownership by doubling the standard deduction, reducing the cap for the mortgage interest deduction (MID) to 750k and limiting property tax deductions along with state and local income tax to $10k. This results in fewer households that will itemize deductions, thereby making homeownership less attractive from a tax perspective.

While on the surface this is a major warning sign, based on a Zillow Survey, tax incentives are fairly low on the list of reasons to purchase a home, particularly among Millennials. The big challenge is for markets where there is a double whammy of high home prices and property/income taxes, which exists in New York, California and the DC region, for example.

As a reminder, one of the major points of controversy within the tax plan was over the removal of state and local tax (SALT) deductions, disproportionately affecting high-tax, or Democrat, states. The end result was a partial repeal, allowing for a $10,000 cap.

This has direct implications on regional housing dynamics as property tax also falls under the cap. Capping the deduction will mean reduced tax incentives for homeownership. Indirectly, households will want to live in lower income tax states.

The chart below from Bank of America shows a heat map for average amount claimed under SALT deductions, with redder states farther above $10k and greener states below. The Northeast and West coast - traditionally liberal bastions and, according to some, explicitly targeted by the Trump administration - generally have higher average amounts and will feel most of the pain. Meanwhile, the West and South have lower average amounts and so those housing markets will be less impacted.



It doesn't end there.

Another provision affecting housing is the change in mortgage interest deductions (MID). Now mortgages up to $750k qualify, versus up to $1mn previously, and only if the mortgage is for your primary residence. Loans that were made before Dec 14 will be grandfathered in.

Taking into account the cap on SALT deductions and the doubling of the standard deduction, Zillow estimated that the percent of homeowners that will itemize falls to 14% from 44% prior to the tax changes. The table shows the counties that will be most affected.



These are the markets that are most vulnerable to a weakening in housing activity. Of course, there are offsets from greater disposable income, but it is only partial.


Mazzy Thu, 01/04/2018 - 21:49 Permalink

Nebraska has some shit taxes.  I'd love to live in the Mid-west in the coming years, but how the fuck does Nebraska compete with amazingly low-tax states like South Dakota and Wyoming right next door?


Endgame Napoleon end times prophet Fri, 01/05/2018 - 00:35 Permalink

Do you think there are any Republicans in those blue states with inflated housing markets? Even where tax-happy Dems are concerned, it is hard for me to advocate more Made in Swampland tax-code privileges / tax-welfare unfairnesses. There is so much of that, with the short, twisted end of the stick always in the backs of childless, single citizens, not that anyone ever objects to that. But it just does not seem fair to jack up their already high tax rates. About the only justification is bringing the price of inflated real estate down so that people who don’t make half a million per year can own a home in those blue, coastal states. As for people moving to states like mine to avoid income tax, that just means more moms with spousal income sufficient to support households in style in this state, competing for both the low wage mom-gang jobs and the high wage mom-gang jobs, both of which grant childbearing-age moms tons of excused time off due to their back-watching rings. The ones taking high-wage jobs help to concentrate the wealth in fewer households, in McMansions that cost a fraction of what a ranch home costs in CA. The moms working in office jobs for my state’s typical $10-per-hour pay scale help to drive wages down for women with no spousal income. They accept low wages in return for libertine absenteeism policies for fellow moms, leaving work every day at 2:30, with phones ringing off the hook with paying customers. It’s okay with momma manager. You take this week off for baby travel soccer. I take next week off for baby dorm room decorating. “Voted best for working moms.”

In reply to by end times prophet

Faeriedust Endgame Napoleon Fri, 01/05/2018 - 19:15 Permalink

It can be a bit more complicated.  For instance, our state -- liberal leave policy, etc. -- office "transferred" -- i.e., laid off, a young mother for essentially having a crisis pregnancy.  Because she was ordered onto bedrest if she didn't want to lose the kid the day before the office manager was scheduled for vacation, and this girl was supposed to cover for the office manager while she was out.  The crisis was caused/exacerbated by high blood pressure, which was directly related to the way the office manager continually harassed her.

Of course, the loss of her backup didn't keep Office Manager (older woman, grown kids) from taking her vacation.  Or from continuing to work only 3-1/2 days a week, taking off every Thursday afternoon and Friday.  Or from harassing the girl unmercifully when she came back from baby leave.  Somebody Else had to pick up the pieces, including when they transferred the girl out.  Because Office Manager NEVER does even her own job, let alone helping out when someone else has a problem.  Or even staying out of the fucking way so other people can work.  So you see, the women don't always cover each others' backs.  Sometimes they eat each other alive.

In reply to by Endgame Napoleon

HuskerGirl Mazzy Thu, 01/04/2018 - 22:48 Permalink

We don't.

And in spite of our high taxes, they announced this week that we have a $250MM budget shortfall and said they'd love to give property tax relief, there is no way they can because god forbid they find spending to cut. 

Nebraska is controlled by Lincoln and Omaha and because of that we're not really a conservative state.

I moved here 7 years ago.  My husband and I have great jobs, but there is no way we'll retire here.  

In reply to by Mazzy

Beowulf55 HuskerGirl Thu, 01/04/2018 - 23:52 Permalink

GOVERNMENT WILL NEVER CUT SPENDING.  I live in Kansas and they just keep raising taxes because of the State retirement program is 9 billion dollars in the hole.  Yet they feel everyone ought to pay higher taxes for the poor state employees.

Out of the 6 billion dollar budget last year they cut 6 million dollars...........whoopie fucking do.

Might as well give them my farm now before I have to sell it for taxes..........

In reply to by HuskerGirl

NoDebt Thu, 01/04/2018 - 21:50 Permalink

While I'm all for telling high tax blue states to suck a back of dicks, I realized there might be a problem.

What if they exodus from those states and move near me?  We may be accelerating the spread of the disease.


NoDebt nmewn Thu, 01/04/2018 - 22:38 Permalink

Passive-aggressive is not my style.  I tend more towards just the aggressive part.  Although, I agree in matters dealing with adjacent neighbors sometimes you have to be a bit of an asshole sometimes.

Quick story- my neighbor off my back property line is an asshole.  Not a lib near as I can tell, just a grumpy asshole.  I spoke with him ONCE.  He was trying to weasel me into cutting down a tree on my back "brushline" that separates my property from his.  It happens to be overgrown with vines like everything else back there and I'm sure he doesn't want to look at it out his back window every day.  I can understand that.  He asked if he could take it down.  I said "OK, no problem".  But the alarm bells in the back of my head were going off like crazy so I added "BUT WHEN YOU CUT IT DOWN YOU HAVE TO DROP IT ONTO YOUR OWN PROPERTY TO CUT IT UP."

Guys gets all huffy, spins on his heels and walks away.  Motherfucker was going to drop it onto my back yard and walk away, leaving it to me to cut up and dispose of.  Which, if you know anything about cutting down trees, is the much bigger part of the job.

That tree still stands, covered with vines, 12 years later.  Hell, the vines are probably the only thing holding the fucker up.  I smile a little every time I look at it.


In reply to by nmewn

GunnerySgtHartman NoDebt Thu, 01/04/2018 - 23:36 Permalink

Sounds like the old fart living on my back property line.  He has a clapboard fence that is 40+ years old and in need of replacement - he promised for three years in a row that he'd replace it (it's on his side).  After the third year, he said he couldn't afford to replace it.  Not long after that, he bought a '57 Bel Air street rod and built a garage for it.  I thought, "No money, eh?"

I like street rods, but that stunt pissed me off.   Being tired of looking at his POS fence, I planted 13 24-inch arborvitae trees on my side of the property line that would hide it in about 4-5 years.  Two years after planting them, those suckers are healthy and starting to creep above the fence.  When he starts complaining about the height of my arborvitae trees, I'm going to tell him, "you should have replaced the fence when you had the chance."

Oh, and his wife is a real estate agent who's a member of the multi-million-dollar annual sales club.  No money my ass.

In reply to by NoDebt

Cabreado Thu, 01/04/2018 - 21:54 Permalink

The biggest pain will be felt by a sovereign nation oblivious to its corrupt points of control.

The "tax plan" will mean nothing...

We're failing on All cylinders now.

wisehiney Thu, 01/04/2018 - 22:00 Permalink

You wealthy blue staters, 

Here is something you have told us over and over.

Did you forget?


The time has come
To say fair's fair
To pay the rent
To pay our share

The time has come
A fact's a fact
It belongs to them
Let's give it back

How can we dance
When our earth is turning
How do we sleep
While our beds are burning?


Beds Are Burning

Midnight Oil

mayhem_korner GunnerySgtHartman Fri, 01/05/2018 - 01:10 Permalink

Define what you mean by "not too many," and then you can start to use big words like "data."

Taking at your word that 30% of filers itemize, that's still 30 million filings annually.  A whole lot of people living in the areas identified above are going to get hit hard by this.  Not judging whether it's fair or unfair, just saying it is so. If you lived in any of these places (maybe you have), you would understand the magnitude of property taxes and mortgage interest.  And not everyone living in these areas is a card-carrying anti-Trump lunatic. 

This doesn't affect "not too many" people - it affects a lot of people.

Soldier on, Jethro. 

In reply to by GunnerySgtHartman

GunnerySgtHartman mayhem_korner Fri, 01/05/2018 - 10:38 Permalink

Not too many = less than 50% of those who file federal income taxes in those states.

As for the 30 million filers that itemize, that's 30 million filers across the nation, which includes more than just high-tax states.

I am not saying that people in high-tax states won't take a hit.  I'm saying that I believe there aren't as many people in those states who itemize and take advantage of SALT as the politicians in these high-tax states claim.

If we were smart, we'd dump insane income taxes altogether at the national level and replace them with the FAIRTAX.

Still waiting for your data link.

In reply to by mayhem_korner

wcvarones Thu, 01/04/2018 - 22:02 Permalink

California's budget and economy is driven by stock market gains and Silicon Valley. S&P 2700 outweighs a lot of middle-class tax deductions.

Sid Davis Thu, 01/04/2018 - 22:08 Permalink

Screw these aholes living in communist utopias.  They could move if they had something other than sawdust in their craniums, but please, if you do, don't try to bring your worthless culture with you.

max2205 Thu, 01/04/2018 - 22:08 Permalink

I am sure that those states will lower their taxes.... ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha 

Mikeyyy Thu, 01/04/2018 - 22:10 Permalink

There are multiple ways around the limitations.  Changing state income taxes to withholding taxes is one.  Making taxes a charitable deduction is another.  Congress has given the blue states an incentive to change their tax structures.  And that's what they're gonna do.