Trump's Tax Plan and Townhouse Real Estate

Posted November 9th, 2016

Needless to say, Trump's victory came as a shock to many here in New York. Nearly 60% of voters in the President-elect's home state (4,142,719 votes) were recorded for Hillary Clinton, while Third Party candidates were all but ignored.


Regardless of your stance, I thought I would take this opportunity to share with you the aspects of Mr. Trump's tax plan which will impact townhouse owners and sellers in the coming years.


1) The most impactful change is found in the promise to repeal the Death Tax (a.k.a. estate tax, inheritance tax). Townhouse owners love their homes and rarely sell unless they must - in fact, one owner joked to me that he won't leave unless he's carried out sideways! Many townhouse owners actually sell earlier in life than they want to as a result of planning their estates. With the so-called Death Tax repealed, townhouse owners will have more flexibility with their estates which may allow them to keep their homes longer.


2) This repeal of the Death Tax comes along with the addition of a new layer of Capital Gains tax levied on gains held until death valued over $10M. Here is an example to illustrate how this change applies: let's say your parent bought a townhouse for $0 in 1973, and passed away under this tax model. If the townhouse is worth less than $10M, then you will not owe a capital gains tax on the property. If it is worth over $10M, you will. This system echoes the mechanics of the current estate tax system, but increases the threshold by nearly 100% (the current ceiling is $5.45M).


This change will relieve additional pressures to sell a property in an estate scenario. For many owners, their brownstone is their most valuable piece of property, and yet they are assets which produce little to no income. Often times, the inheritors of a property cannot afford a large lump sum capital gains payment and are forced to sell. While prices have gone up in recent years, very few properties are worth more than $10M, and so many families may have the option of keeping their family's home.


Of course, taxes are not the only issue. The election will have a profound impact on the country's economy which will, in turn, affect the performance of the New York townhouse market. In less than 24 hours, markets have tanked and then rallied above their original position already; time will determine where the tumult will level out.

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