State and local tax deduction eliminations could cause clients to leave high-tax states
Regulatory changes that would put an end to state and local tax deductions could prompt many home owning clients in high-tax states to consider relocating, a Redfin survey finds.
Almost 33% of 900 respondents would consider a move if the deductions were not available. The rest either would not move, would not be affected by the change or aren't sure how it would affect them.
The loss of the deductions could be particularly costly for residents in places like California, New York, New Jersey, Maryland, Massachusetts and Illinois. Respondents from California were slightly more inclined to consider a move.
In California, slightly less than 6% of borrowers would definitely move, and nationally, 5.5% would definitely move. Nationally, 7.4% are unaffected by the tax change, whereas only 5.4% of respondents in California would not be affected.
More than 42% of respondents nationally and almost 39% in California wouldn't move. More than 17% nationally and more than 18% in California aren't sure if they'd move.
Proposed tax reforms also could encourage would-be sellers to stay put longer, as residency requirements necessary for single and married borrowers to qualify for certain deductions increase, according to a report by Redfin Chief Economist Nela Richardson.
In order for single homeowners to exclude as much as $250,000 of sale proceeds from capital gains tax, and married homeowners to exclude as much as $500,000, the residency requirement could be increased to five out of the past eight years. It's currently two out of the past five years.