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Fiscal cliff crushing NYC real estate?
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Ok, so there are many many households in NYC that are about to have their income tax go up 4.6%; in addition to Obamacare taxes and increase in investment income taxes

How can this not crush new york city real estate? I know brokers will say "tons of demand from foreigners"...its not like foreign economies are doing any better.

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well, they are definitely going up 4.6% just on income. so he actual tax increase with all the obamacare etc is more like 6-8%.

So if you make a million bucks a year; you are going to get tagged for $80,000 more next year. Those 1mm per year people are usually the purchasers of real estate, The people making 100k-400k almost always are just renters because they cant afford to purchase.

Maybe "crush" is an overly aggressive term.... but given taxes just went up by a lot...AND Obama just indicated he wants to raise taxes even further on the "rich"...I just cant see how someone would think now is good time to buy

As CC mentions it is marginal tax rate. So only raise is on income above $450,000. So really not that big a deal. See France for the example of a tax rate that would have crushed the luxury market.

This is why I don't think it's such a bad idea to raise the threshold on one of the increases to $400,000 or $500,000 from the Dem proposed $250,000: Not that raising the rate on $250K is bad in itself, but that you can't take that one point on one table in isolation. Those are the people getting whammed by a sudden payroll tax they didn't have before, and it's not insubstantial. So although I'm a soak-the-richer/take-and-spend person in general, I think the Republicans have it right on this one. As far as the taxes on people making a million bucks a year, yeah, it ought to put a big dent in people's real-estate-buying budget, but don't they have the incentive to load up on tax-deductible mortgage interest even that much more? The devil is in the details, and this whole drumroll up to today's "cliff" makes me want to puke. The fact that these deadlines were set in place long ago makes it hard to cry about how they just MUST be averted. If they must be averted at all costs, why are they in place to begin with? And all the pundits shriek from the sidelines about the recession-causing effects; no one talks about the possible long-term good effects of deficit reduction.

>> Those 1mm per year people are usually the purchasers of real estate, The people making 100k-400k almost always are just renters because they cant afford to purchase.

There are 1.6M people in Manhattan with an average household size of 2.11, so 760K households. If you believe this NYT article, the top 1% line in Manhattan is $790K:

http://www.nytimes.com/2012/01/15/business/the-1-percent-paint-a-more-nuanced-portrait-of-the-rich.html?pagewanted=all

So no more than 7600 households in Manhattan who make $1M. Or else 16K if the line was based on individuals. In either case, the number is on the same order as the number of apts sold each year.

So doubtful that $1M earners are the only ones buying. About half the apts sold each year are studios & 1BRs. Hint: $1M earners are not the typical buyer for those.

Fiscal cliff or those that are ultimately affected by the rise in tax rates actually helps real estate. With tax rates going upthe value of mortgage debt and real estate tax expenses goes up. At least on the high end..

Riverside - not if they cap the deductions which im sure they will do!
Inonada - Im talking about 1-2 bedrooms in decent shape and in decent neighborhoods. I think its fair to say the cost of those apartments, conservatively speaking, is 1-2mm

Lets do the math on people making $750,000

* Federal taxes & obamacare of around 43% --> So thats $322,500 of earnings
* State Tax of 8% --> $60,000
* NY City Tax 3.5% --> $26,250

So total tax bill of $408,750 which leaves earnings per year of $341,250

if you buy a $1.5mm place in NYC; after putting 20% down, your mortgage is around $6000 a month or $72,000 a year not counting maintenance. Lets just add $8,000 for maintenance. So total of $80,000 a year in mortgage payments

take that out of the $341,250 and you have $261,250 to take care of everything else; your kids schooling; vacations, regular expenses etc. I cant imagine you can save more than $100,000 a year to actually build wealth (outside of the principal you are putting into your house) and thats if you send your kids to public school

If anyone does make around $750,000 and has 2 kids and owns in NYC; Id be shocked if they saved more than $100,000 a year for retirement/wealth building. Maybe Im wrong and missing something; I hope I am! It just seems so hard to own and build wealth in this city. Obama isnt making it any easier

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BobF- Nothing has changed for anyone making $750K. They were in the AMT and had higher tax rate to begin with and limited deductions. Bush tax rates never applied to them. In any case, the saving rate in Manhattan is lower due to cost of living. Older Manhttanites sell their RE and move to Florida...

sounds like the 250K earners market could be affected

Bob, you are indeed wrong and missing something.

At $750K of AGI, you'd pay $50K in state taxes and $27K to city. Federal taxes would be at 28% under AMT, so $210K, assuming no mortgage deduction. You'd pay $6500 to SS and $15500 to Medicare, so $22K there. All told, $309K in taxes, not $409K. And after-tax income of $441K, not $341K.

I am on the verge go buying a coop and wondered what the FC would have. Have they decided to do away with mortgage deduction? My income is no where what you guys are referencing, but still the same up it's hard earned money. Would you continue to rent? I have been renting way too long an decided on the plunge since interst rates are so pathetic and mortgage rates are low. Talk about timing for someone who is risk adverse

Obama has already threatened republicans again by saying yesterday that his "revenue generating" mission isnt over... meaning he is going to try to raise taxes even more next year on the wealthy. So in addition to moving the top tax rate to 39.6%; and the other taxes he is adding....he is going to try to go after more. I would guess he goes after limiting deductions, ie - limiting mortgage tax deductibility of mortgage interest for anyone making over $250,000.

I dont really understand why he hates people who make money.

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From Apt23 above: "Deductions will most likely be capped. Today the Dem's were talking about capping deductions for the plus 250K earners as a way to claw back some of the revenue they lost by agreeing to 400K earners for increased taxes. Though no specifics were released."

What do you think they will do to ability to fully deduct through itemization state income taxes and real estate taxes? I don't care about mortgage interest deduction or deductions for charitable contributions, but I'm not sure I like disallowing deductions for state income taxes and real estate taxes.

Eliminating/limiting mortgage interest deduction (and all other itemized deductions) is in the senate passed bill that the house will likely pass shortly. Do a google search for Pep and Pease. Deductions will phase out starting at $250-300k agi level. I'm not a tax expert but from what I can see it hits the same way as the AMT but catches most of the deductions that are exempt (such as mortgage interest). I think almost all deductions for families making $380k plus are lost (or essentially all...i think you get to keep 20 percent of them). Def not good for those with mortgages in NYC and in that income range. Correct me if I'm wrong (which I hope I am).

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No, he is right. It's called the Pease provision. Caps mortgage deduction. There are a bunch of these back door taxes going up; many on the "rich" but also a bunch for middle class.

>> I think almost all deductions for families making $380k plus are lost (or essentially all...i think you get to keep 20 percent of them).

Assuming it is the same as it was before, deductions would be reduced by the lesser of (a) 80% of the deductions; or (b) 3% of AGI exceeding a threshold of $250K (single) or $300K (married). The latter most typically is binding.

So if you are married and have an AGI of $400K with deductions of $80K, you lose the lesser of (a) $80K * 0.8 = $16K; and (b) ($400K - $300K) * 0.03 = $3K. So you lose $3K of your deductions, meaning about $1K more in taxes.

It effectively makes income above the threshold have a marginal tax rate that is 1.05% or 1.188% higher than the headline rate (35% or 39.6%) so long as you have deductions (which is pretty much guaranteed in NY due to state/local taxes).

So yeah, a bit higher. But a much smaller effect than you mentioned and BobF incorrectly confirmed.

Err, (a) in the example should have been $64K, not $16K.

Thanks Nada - your analysis is consistent with analysis accountant gave me (with caveat that nothing is settled). My question was prompted by 12/27 e-mail from accountant that had gone into my work e-mail during vacation along the line of "it would be wise to prepay your Q4 2012 estimated New York taxes by 12/31 b/c ability to deduct in 2013 uncertain." I received the e-mail when I checked work e-mail last night and immediately sought clarification, which was in my inbox this morning.

Taxes will go up on many NYC apartment investors but if the markets continue to rise these people will still invest in properties.

if you are in AMT, you can't deduct New York estimated tax payments anyway

And no aid vote for Sandy. I imagine it would be different if Chicago was hit.

Conspicuosly absent for any comments or soundbites on any news program over the last 24 hours and in order, Chuck Schumer, Andrew Cuomo, Mike Bloomberg.

Someone please show me what Chuck Schumer has realistically done for the people he represents over the last 15 years?
Earmarks for racetracks?

Considering what the state of NY brings for this country, I hope my fellow NYers feel some of the of the same disgust I do from the lack of representation and respect shown over the last 4 blue years.

Wake Up!

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>it's good to have a long standing Senator representing us

Hburg, exactly except Schumer appears to have the weight of a 2 year old.
Im no Kirsten fan either but Chuckie was so front and center on how much money he was bringing to NYC when he was about to ask for the money.

Great photo ops when asking for $50m.
Today he's on a milk carton.

Crescent - beyond AMT.

This morning a Republican Rep told NYers they would be crazy to donate to GOP reps because there was no Sandy vote and that he would potentially defect. Its Jan 2 and there are 3 more cliffs this quarter that need to be addressed. It's going to be a bumpy ride.

Thanks for the confirmation, NYCNovice.

The OP's point is that the new taxes will "crush" NYC real estate. They won't.

ionada - you do seem to have a nice handle on AMT (thanks for pointing out this 'reality' that has hit many of us long before all this 'cliff' crap...) My experience with AMT - both bumps up taxes and reduces/eliminates itemized deductions. It seems that only While I am not a Tax accountant but I am always within 1,000 of my final actual tax bill when I do my estimate. It will be interesting to see how the dust settles.

On the Sandy funding - Rep King (R) from LI made a great comment saying something to the effect that it is amazing how quickly the D.C./GOP hacks comes to NY for our cash donations for their campaigns, but when we look to them for support they look the other way. He encouraged 'constituants' to stop donating to the GOP Losers that could care less about us. Hope they are enjoying their recess while our Sandy victims freeze, starve and go out of business. Funny the last "Recess" I took was when I was in Kindergarten - fitting, ain't it?

We are only one data point, but tax increases are affecting our NYC real estate decisions. We allocate roughly 12% agi to our housing; tax increase is decreasing our cash flow in 2013 by more than 4.6%. I have no idea how our accountant comes up with his projections,but decrease in cash flow is approx 75% of what we spend on housing. Definitely continuing to rent; question now is whether to downsize rental. We could change our other spending, but real estate consumption is likely the thing that will give for us.

>He encouraged 'constituants' to stop donating to the GOP Losers that could care less about us. Hope they are enjoying their recess while our Sandy victims freeze, starve and go out of business. Funny the last "Recess" I took was when I was in Kindergarten - fitting, ain't it?

Foo
The right has no cohesion or real message. The left as evidenced by HBOs "Newsroom" is drunk.
We live in a very left town so I find myself arguing the right point of view far more often but I am most assuredly a centrist.
But rewatching now on Netflix (up to middle of season 3) The West Wing, its clear how much worse things have become.
THough surely a lefty show, it nicely held the mirror up on left views, giving valid and constructive criticism to both sides.
We appear to be on the sure path to Idiocracy.

PS> earlier post I obviously meant $50B not $50M

truth, i agree on schumer. this dude is the consummate ny politician. his biggest contribution is to make sure tide cleaning bombs are repackaged so they don't look like candy to the tots (a noble effort but one my little son's project class couldve handled). the guy is mr photo op but never has put himself out there for any cause that may have associated "risk" or political backlash. a wet noodle, a modern day version of boss tweed altough that distinction probably rightly belongs to shelly silver. nauseating. although the sandy aid will be passed right quick.

Schumer makes sure that the ridiculously low tax rate on carried interest, which is the most egregious example of tax dodging, stays in place because those who give him large contributions are the ones who benefit from that particular tax loophole.

Every time there is an attempt to close that loophole, Schumer steps in to rescue it.

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I'm really surprised that this thread hasn't brought the bears out in force. A title like "Fiscal cliff crushing NYC real estate?" is usually like catnip for some folks.

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hb, i would be might life on my noodle matched up against your raisin.

*bet*

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great comeback, hb. had me on the edge of my seat, now i think i will do something far more compelling than responding to you..like, hmmmmm, take a dump.

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HB - didn't your mother tell you it is not nice to mock those who are less intelligent than you? I am not, repeat not, laughing, and let there be no mistake: I do not approve.

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ahh, back hb. your posts are better than any daily dose of fiber. you keep these boards regular, keep up the great work.

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Good job Washington
Higher taxes and tax Breaks for :

$430 million for Hollywood through “special expensing rules” to encourage TV and film production in the United States. Producers can expense up to $15 million of costs for their projects.

$331 million for railroads by allowing short-line and regional operators to claim a tax credit up to 50 percent of the cost to maintain tracks that they own or lease.

$222 million for Puerto Rico and the Virgin Islands through returned excise taxes collected by the federal government on rum produced in the islands and imported to the mainland.

$70 million for NASCAR by extending a “7-year cost recovery period for certain motorsports racing track facilities.”

$59 million for algae growers through tax credits to encourage production of “cellulosic biofuel” at up to $1.01 per gallon.

$4 million for electric motorcycle makers by expanding an existing green-energy tax credit for buyers of plug-in vehicles to include electric motorbikes.

http://abcnews.go.com/blogs/politics/2013/01/fiscal-cliff-deal-also-doles-out-millions-for-hollywood-railroads-rum-producers/

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