I have been having a debate with a few folks lately on how much the removal of the interest deduction will affect the Manahttan real estate market. My argument is that currently the average price of an apartment is so high that the interest deduction is not that meaningful relative to other parts of the country. The logic is that anything over a 1bedroom is north of $1m. People who buy anything... [more]
I have been having a debate with a few folks lately on how much the removal of the interest deduction will affect the Manahttan real estate market. My argument is that currently the average price of an apartment is so high that the interest deduction is not that meaningful relative to other parts of the country.
The logic is that anything over a 1bedroom is north of $1m. People who buy anything over $1m are largely less affected by the interest deduction as it is not as meaningful to their bottom line. It may effect a decision on purchasing power but arguably not more then 10 -20% of purchase price. Given the current health of Manhattan real estate does it affect much?
I could see maybe a 10% correction at best in the short term. I think the real problem is rising rates in 2015 and beyond. When rates rise and income levels have nominal growth a true correction could occur.
For all that are not aware the interest deduction is currently capped at $1m. Also I do believe it will affect speculators To some degree, but again many of the Manhattan speculators are not affected given their current income levels
Thoughts? Flaws in my thinking? In general I believe that the rest of the country are more dependant on this and it will affect prices in locations with lower average housing prices.
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Response by Tomnevers
over 13 years ago
Posts: 97
Member since: Mar 2012
Massive mortgages carry huge interest payments and correspondingly large deductions. I don't see how this would not affect Manhattan to a significant extent.
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Response by Riversider
over 13 years ago
Posts: 13573
Member since: Apr 2009
Less than you might think.
* No benefit for mortgages in excess of one million dollars
* No benefit for debt used to finance investor properties
* No benefit if you itemize and wind up taking standard deduction
* Limited benefit if you are not in top tax bracket or subject to AMT
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Response by jason10006
over 13 years ago
Posts: 5257
Member since: Jan 2009
Lets start the 85th thread on this topic.
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Response by a2deuce
over 13 years ago
Posts: 115
Member since: Apr 2007
People have debated this but have not seen anything specifically to Manhattan (especially Prime Manhattan below 96th street)
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Response by BigPapi
over 13 years ago
Posts: 95
Member since: Nov 2012
very interesting anyway
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Response by jms8
over 13 years ago
Posts: 110
Member since: Apr 2011
Major flaw in your thinking "The logic is that anything over a 1bedroom is north of $1m" this is simply not the case
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Response by w67thstreet
over 13 years ago
Posts: 9003
Member since: Dec 2008
Riversider and Jason makes me laugh......
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Response by a2deuce
over 13 years ago
Posts: 115
Member since: Apr 2007
jms8 the avg price of anything above a 1 br is definitely over $1m in manhattan. Please show me 2 bedrooms for cheaper.
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Response by oldgreyhair
over 13 years ago
Posts: 122
Member since: Nov 2010
Won't affect prime manhattan real estate at all. $1mm x .036 x .30 = $10,800 value. Really chump change even if the deduction will be totally eliminated, which (of course) it will not. Expect maybe some phase out of the deductions for hight income taxpayers above $250,000 AGI, but net result is if the phase out reduces the tax benefit to $8000, it's only a couple of thousand loss, not a big deal and no impact on values.....
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Response by jms8
over 13 years ago
Posts: 110
Member since: Apr 2011
a2deuce - you can do a search for yourself - i just got 240 hits for 2 bedrooms between $700K & $1million - yes they may not be huge but they are liveable. I live in a fantastic second floor walk up on the UES with one of the top elementary schools, not fair really to perpetuate the myth that there are no affordable options for 2 bedrooms.
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Response by jojo10
over 13 years ago
Posts: 60
Member since: Dec 2008
As I've said before on similar threads, I'm not an accountant but I wanted to try weigh in on a few things here. First, the deduction works for up to the first million in mortgage principal. Thus, for a $2MM mortgage, one still gets to deduct the interest on $1MM of that mortgage. Second, the interest deduction does work as a deduction against the AMT (along with the charitable deduction). Finally, I would assume that a significant percentage of people who own apts in NYC idemize deductions betwen the fact that it is likely to take a high income to own and given that NY taxes are so high one is incentivized to itemize.
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Response by a2deuce
over 13 years ago
Posts: 115
Member since: Apr 2007
Jms8- 240 apartments when there are 1.6m people in Manhattan is a very small number. Of course there are outliers but in general people pay north of $1.5 for a 2 bed spot in Manhattan. Some pay less some pay more.
Jojo- point taken on the first million but when you spend $2m does the deduction on the first move the needle that much? Sure it helps and everyone wants more money in there pockets but it really shd not be swaying a decision on purchasing when spending that much.
At the end of the day I can see prices in Manhattan for anything over $1m being affected by maybe 10% but not much more. The lower end could see some movement but not when rents are so high. If rents come down then not having the mortgate deduction could affect pricing for the 1 br market, but I believe rents would have to come down by 25%.
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Response by huntersburg
over 13 years ago
Posts: 11329
Member since: Nov 2010
w67thstreet
1 day ago
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Member since: Dec 2008
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Riversider and Jason makes me laugh......
Massive mortgages carry huge interest payments and correspondingly large deductions. I don't see how this would not affect Manhattan to a significant extent.
Less than you might think.
* No benefit for mortgages in excess of one million dollars
* No benefit for debt used to finance investor properties
* No benefit if you itemize and wind up taking standard deduction
* Limited benefit if you are not in top tax bracket or subject to AMT
Lets start the 85th thread on this topic.
People have debated this but have not seen anything specifically to Manhattan (especially Prime Manhattan below 96th street)
very interesting anyway
Major flaw in your thinking "The logic is that anything over a 1bedroom is north of $1m" this is simply not the case
Riversider and Jason makes me laugh......
jms8 the avg price of anything above a 1 br is definitely over $1m in manhattan. Please show me 2 bedrooms for cheaper.
Won't affect prime manhattan real estate at all. $1mm x .036 x .30 = $10,800 value. Really chump change even if the deduction will be totally eliminated, which (of course) it will not. Expect maybe some phase out of the deductions for hight income taxpayers above $250,000 AGI, but net result is if the phase out reduces the tax benefit to $8000, it's only a couple of thousand loss, not a big deal and no impact on values.....
a2deuce - you can do a search for yourself - i just got 240 hits for 2 bedrooms between $700K & $1million - yes they may not be huge but they are liveable. I live in a fantastic second floor walk up on the UES with one of the top elementary schools, not fair really to perpetuate the myth that there are no affordable options for 2 bedrooms.
As I've said before on similar threads, I'm not an accountant but I wanted to try weigh in on a few things here. First, the deduction works for up to the first million in mortgage principal. Thus, for a $2MM mortgage, one still gets to deduct the interest on $1MM of that mortgage. Second, the interest deduction does work as a deduction against the AMT (along with the charitable deduction). Finally, I would assume that a significant percentage of people who own apts in NYC idemize deductions betwen the fact that it is likely to take a high income to own and given that NY taxes are so high one is incentivized to itemize.
Jms8- 240 apartments when there are 1.6m people in Manhattan is a very small number. Of course there are outliers but in general people pay north of $1.5 for a 2 bed spot in Manhattan. Some pay less some pay more.
Jojo- point taken on the first million but when you spend $2m does the deduction on the first move the needle that much? Sure it helps and everyone wants more money in there pockets but it really shd not be swaying a decision on purchasing when spending that much.
At the end of the day I can see prices in Manhattan for anything over $1m being affected by maybe 10% but not much more. The lower end could see some movement but not when rents are so high. If rents come down then not having the mortgate deduction could affect pricing for the 1 br market, but I believe rents would have to come down by 25%.
w67thstreet
1 day ago
Posts: 8588
Member since: Dec 2008
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Riversider and Jason makes me laugh......
Likewise.