House Passes Massive Tax Bill Expanding Deduction On SALT Tax (Without Using A Semicolon)

• The Big, Beautiful Tax Bill May Increase Mortgage Rates
• Original SALT Tax Held Down Property Values In The Northeast And California
• Proposed Higher SALT Tax Deduction Could Expand Sales

[NEWS FLASH] Bloomberg just scooped that Douglas Elliman received a merger offer from real estate giant Anywhere [gift link]. Mergers in the real estate brokerage space are on the upswing.

Ok, back to the SALT mines. Back in 2017, when the Tax Cut and Jobs Act (TCJA) was signed, I reached out to my appraiser colleagues in Dallas, where we were going to hold a RAC conference. Dubbed the “SALT” tax, I thought that this issue would need to be talked about because it would have massive ramifications on home valuation. Admittedly, I still hesitate when I hear “SALT,” trying not to confuse this with the Strategic Arms Limitation Talks I grew up with. However, the feedback I got from my peers in the Midwest was that only a small number of homes would be impacted by the smaller deduction. My market in New York and much of the region got throttled by the new law capping the deduction for the total of property taxes and state and local taxes to $10,000. Regional counties our appraisal firm covers include Westchester and Nassau Counties in New York, which have some of the highest property taxes in the nation. Fast forward to this week, the massive federal “big, beautiful” tax bill passed by one vote in the House that expanded the cap on state and local taxes plus property taxes. The update to the 2017 TCJA expanded the deduction cap to $40,000. Of course, the bill has to be passed by the Senate, and the increase could be short-lived. Setting aside the addition of over $4 trillion, the House version will add to the federal deficit; the extension will provide relief to homeowners in highly taxed states in the Northeast and California.

The Deduction’s Impact On Property Values

The original “SALT” tax cap of $10,000 was painful for New Yorkers and many markets in the Northeastern US. In my observation, it pulled down prices in Manhattan by about 14% over the next two years. In fact, prices began to stabilize in early 2020, just before the pandemic started that spring. We ran into high-end Westchester properties for sale that had $200k+ annual property taxes and state and local taxes that were suddenly limited to a deduction of $10,000. The rise in the cost of homeownership of these properties was considerable.

However, once prices drifted lower over the next two years, mortgage rates plummeted during the pandemic, and the financial markets boomed, jump-starting the high-end market throughout the region (same applied to California).

Lower Mortgage Rates Becoming A Distant Memory

• The new tax bill is forecasted to add trillions to the federal deficit, which is inflationary.
• It places much higher taxes on the working and middle class but fewer taxes on the wealthy, suggesting a potential burst of high-end real estate demand.
• The embedded tariff policy and the constant uncertainty of the addition of new random tariff threats are inflationary and destructive to the supply chain.
• Moving Fannie Mae to the private sector via an IPO will remove the implicit backing of the US government, raising interest rates by potentially another .05% to 1%. This action is not believed to be inflationary; it is just destabilizing the housing market.

There are other benefits to real estate, according to NAR, that I don’t have time to cover, but you can explore here: House Passes Tax Reform Package with Key Wins for Real Estate
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Final Thoughts

The inconsistent economic policy coming out of Washington this year isn’t helping the housing market; in fact, it is working against a sales recovery of the housing market nationwide. While the odds of seeing lower mortgage rates are fading, so are the odds of a recession. JPMorgan reduced the odds from 60% to less than 50%. Of course, the Tariff merry-go-round will return this summer when the pause expires.

The Actual Final Thought – How about ;;;;;;;;;; and ;;;;;;;?.

Here’s My Podcast: What It Means

The latest episode (5) is a click away. Because of technical reasons, last monday’s episode is only available on Youtube for now.

Podcast Series That Capture My Attention

I listen to a lot of podcasts. So I thought I’d try sharing what I listen to each week. Most recommendations have nothing to do with the economy or the housing market.

Martini Shot: The Missing Middle-Zone Shows

• This was the first podcast series I ever listened to when Apple first established a podcast platform. I marvel at Rob Long’s prolific story telling ability about an industry I know very little about.

99% Invisible: Secret Mall Apartment

• This is an early podcast that I’ve spent years following as a devoted listener. It covers all aspects of design and architecture, seemingly focused on niches and quirks.

Did you miss the previous Housing Notes?

Housing Notes Reads

• V.P. of Real Estate Group Voted Out After Harassment Allegations [NYT]
• Throwing away my MAI [Realwired]
• Little chance of rate cuts in the current economy [Real Estate News]
• Moody's strips U.S. government of top credit rating, citing Washington's failure to rein in debt [AP]
• US Housing Outlook [Apollo]

Market Reports

• Elliman Report: Florida New Signed Contracts 4-2025 [Miller Samuel]
• Elliman Report: New York New Signed Contracts 4-2025 [Miller Samuel]
• Elliman Report: Hamptons Sales 1Q 2025 [Miller Samuel]

Extra Curricular Reads

• Be Like You [The Big Picture]
• Steam networks [Works in Progress Magazine]
• Black Flag – Damaged [Internet Archive]
• Fact-checkers are out. The internet gets to vote on the truth now. [Poynter]
• Jonathan Miller [PahrooZings: Appraisers on Purpose Podcast]