New Yorkers have voiced concern the new tax law would have a negative effect on real estate transactions within the state. More specifically, a provision within the Tax Cuts and Jobs Act (TCJA) capped the amount of state and local taxes taxpayers could deduct on their federal tax returns.
The new tax law reduced this tax break, referred to as the SALT deduction, to $10,000.
Did the change affect real estate deals in the state?
So far, it looks like the concerns were warranted. Average resale of apartments in New York City dropped by 5% — the biggest drop in almost a decade. Unfortunately, the same is true for home prices. Home prices have dropped significantly and sales are down by 2.7%.
Are things leveling off?
Thus far, the real estate market has not leveled off. It does not help that shortly after the TCJA went into effect New York officials also passed a tax on high-value properties. The tax, referred to as the “mansion tax,” increased the transfer taxes on properties valued over $1 million from 1% to a maximum of 3.9%.
Are there options for New York residents attempting to navigate these tax laws?
New York lawmakers attempted to circumvent the SALT limitations with a legal workaround. This workaround involved allowing taxpayers to pay their SALT obligations to a charitable organization. The taxpayer could then deduct the payment as a charitable donation on federal tax returns. The Internal Revenue Service (IRS) took action against this effort, releasing rules in June that essentially ended this workaround.
Lawmakers continue to fight back. States that are affected by this cap have filed suit against the IRS to overturn the regulation. We will follow the progress of this suit and provide updates as they become available.
Taxpayers who choose to use workarounds to reduce their tax obligations may find themselves the subject of a federal tax audit. If the dispute involves a large tax bill, it is wise to seek legal counsel to better ensure your interests are protected. The attorneys at Goldburd McCone have experience in these matters and can advocate for your interests.