Just before Congress adjourned for the December holidays, the Tax Cuts and Jobs Act was signed into law, receiving President Donald Trump’s approval on Dec. 22, 2017.

Whether taxpayers are excited, angry or cautiously unsure about the changes to the tax code, most will see several adjustments to the calculation of their gross taxable income, exemptions they can take and deductions they qualify for.

With most changes taking effect on Jan. 1 this year, the upcoming tax filing for the 2017 calendar year is largely unaffected. But with 2018 already started, it’s important to know how your decisions this year will impact what you owe the government.

For future homeowners, in particular, a few changes could mean the difference between buying a home and deciding to rent for another year, or looking to buy in a different town to avoid paying higher property taxes. As a result, there’s a good chance you’ll see some housing markets dip in sale prices.

“You’re going to see an initial drop in home prices. Some of it is reality, and some of it is psychological,” says Jeffrey Citron, a real estate expert and co-managing partner for the law firm Davidoff Hutcher & Citron LLP in New York City.

Before jumping into expectations for housing markets and how consumers may view homeownership differently, let’s break down which details of the law impact owning a home:

Mortgage interest deduction is limited. The new tax law reduces the maximum amount of mortgage debt you can deduct interest on your taxes to $750,000 from $1 million. Any loans taken out after Dec. 15, 2017, are subject to this new rule, though any existing mortgages have been grandfathered in with the old limit of up to $1 million.

The interest on a mortgage for a second home is still deductible, subject to the same $750,000 limit. Interest on home equity loans are only deductible if the debt is taken out to improve the residence, effective through the end of 2025.

Deductions on state and local property taxes are limited. Homeowners may itemize deductions of up to $10,000 for the total payment of state and local property taxes. Previously, all state and local property taxes were deductible in the federal tax filing without limit.

Standard deductions increase. The standard deduction for taxpayers doubles under the new law, to $12,000 for individuals and $24,000 for joint filers. In many cases, this change will lead taxpayers to take the standard deduction rather than itemize their filing.

How Will Housing Be Affected?

The standard deduction increase will likely lessen the incentive to itemize your deductions. This is because fewer people will be getting more than the standard deduction back if they itemize, which technically reduces the tax-related benefits of owning a home.

Less than half of U.S. homes (44 percent) were previously worth enough for owners to itemize under the previous law, according to real estate information company Zillow. Under the new tax act, that number decreases to 14 percent.

“There’s no question in my mind that initially there’s going to be this fear factor for [first-time] purchasers as to what their costs are going to be – they can’t deduct their mortgages, they can’t deduct their [property] taxes and they have to look at their total budget as to what they can really afford,” Citron says.

Of course, that simply means people won’t be itemizing deductions as much. Consumers will still need to weigh the other pros for homeownership – like building wealth through equity and appreciation in value over time – and consider whether owning a home in the same high-property-tax city or county is still the best move.

Homeowners who are retired or semiretired may feel greater incentive to downsize or move to a new city, says Cody Vichinsky, co-founder of Bespoke Real Estate, based in Water Mill, New York. Plans to sell the family home in a pricey part of town may get moved up as the tax change makes the argument “more compelling to get out of their assets” in high-tax areas, he says.

Additionally, Vichinsky notes first-time homebuyers may be further delayed in purchasing because they have additional costs to consider when they’re just now breaking into the market. Genworth Mortgage Insurance released its third-quarter 2017 report in December, which found 40 percent of single-family home purchases and 56 percent of new mortgages originated for sales between July and September were made up of first-time homebuyers. With property taxes that aren’t deductible under the new law, “it’s a second mortgage, almost, for a lot of these folks,” Vichinsky says.

Where Can We Expect the Changes to Impact Real Estate Most?

Home values and property tax rates vary widely from city to city and county to county, which means certain areas are likely to see home sale prices impacted due to the tax act, while other areas may appear largely unaffected.

Homes located in highly ranked school districts may see more homes go on the market as homeowners start to weigh the pros and cons of the location more heavily, Vichinsky says. “The argument [for living in such a neighborhood] is becoming a little bit more difficult if they’re not able to write off some of their homeownership taxes,” he explains.

In cities or counties with particularly high property tax rates, Citron expects to see a decrease in home prices as residents reconsider what the location is really worth. He notes places like downstate New York and parts of New Jersey could see as much as a 10 to 15 percent decrease in prices.

On the opposite end, Citron says we could see market growth in other parts of the country: “If the bill is successful, … if there is job growth and there is a return to the industrial sector of our country, in many areas in the long term you may see an increase [in home prices].”

Should We Expect More Changes to Come?

Of course, with the TCJA squeezed in at the end of 2017, there’s always a chance we’ll see amendments to the law throughout the year, with retroactive effectiveness to cover all of 2018.

Citron expects changes during the year. “I believe the president will use certain aspects of the tax bill as a trade-off to work with the Democrats to get some of his other legislation through,” he explains.

Where any potential future amendments to the new tax law would focus is up in the air, but it’s worth staying aware of to ensure any major personal decisions in 2018 – like a home purchase – don’t leave negative surprises when you file your taxes next year.

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Originally published here written by Devon Thorsby