Taxpayers in states with high income and property taxes are feeling the strain from new laws that cap deductions, the Wall Street Journal reported.
It’s still too early to measure the full impact of the Tax Cuts and Jobs Act that went into effect on Jan. 1. But some real estate professionals are noticing what could signal a mass exodus to low-tax states, the report states.
“I’ve seen a huge increase in the number of clients who want to purchase in Palm Beach to establish residency in Florida,” Chris Leavitt, director of luxury sales at Douglas Elliman Real Estate in Palm Beach, told the Journal. “And there has been a pickup since Jan. 1.”
Leavitt said he recently met with four couples from New York City who were looking to purchase high-end real estate in Palm Beach.
“They were finance people in their mid- to late-30s looking in the $700,000 to $1.5 million range for condos on the island,” Leavitt told the Journal. “That night I saw before my eyes how this tax law is impacting the real-estate industry here.”
Before the new laws, taxpayers who itemized could write off a virtually unlimited amount of state and local taxes. The new law caps deductions at $10,000.
Taxpayers in states with the highest income and property taxes — New York, New Jersey, Connecticut, California, Maryland, and Oregon – are impacted the most, the report states.
Real-estate developer David Hutchinson, president of Ketchum, Idaho-based VP Cos., is a partner in a development project for Clear Creek Tahoe, a golf community that will have 368 custom homes.
The project sits near the California-Nevada border. California residents can pay a state income tax of up to 13.3 percent, while Nevadans pay no state income tax.
“Most of our lot sales are to buyers from California, the vast majority of whom intend to make them a permanent residence,” Hutchinson told the Journal. “If you’re a wealthy tech executive from the Bay Area who can live wherever you want and you have a $3 million income, you would have $399,000 a year in savings here. That’s a lot of money to spend on real estate.”
What are other considerations?
Income taxes are not the only issue to consider, however.
“Make sure you want to live there, and that it’s not just to save the taxes,” Hutchinson told the Journal. “It is great to save money, but if you’re not a Texas person and you move there just to save on income taxes, that’s a mistake.”
Also, some states with no income taxes have high sales tax rates, the report noted.
The new tax law also benefits high-net-worth people by reducing the top individual tax rate and increasing the estate and gift tax exemption, according to the report.