Here we are in the first year of Donald Trump’s new tax plan, and Americans are starting to digest all the changes that have taken place with this new policy. The new tax plan certainly has its benefits. The new corporate tax rate is 21%, the revised tax brackets are all putting more money in the pockets of workers, and there’s been a hike in the standard deductions to $12,000 for an individual and $24,000 if your married filing jointly. All these things are great, but what about the new SALT deduction laws and how does it affect us in Nassau & Suffolk County?
The new tax plan has limited the SALT deductions to $10,000 in property taxes against your income. As we know, here on long island and in most democratic states like NY/California – our property taxes are very high. Its not uncommon for people in middle class neighborhoods to have property taxes of $25,000 per year. In the more high-end neighborhoods, we see $55,000-$65,000/year in property taxes as being a common number paid by homeowners. Nassau County ranks 6th and Suffolk County ranks 15th in the percentage of homeowners that are paying more than$10,000/year in property taxes throughout the country. Nearly half the homes in Nassau and one third of the homes in Suffolk fall into that statistic. Nassau County has about 26,000 residents paying $20,000/year or more in property taxes, and Nearly 9,000 residents paying $30,000/year or more in property taxes. Suffolk has 15,000 residents that pay more than $20,000/year in property taxes.
Just based on the above numbers, it’s obvious that Long Island is going to feel pain with regards to real estate, as a result of this law change. The change effects too many people that reside here for it not to. The question is, what will the changes look like?
The tax change has a bigger effect on your finances with the higher your property taxes are. It is my belief that people who are well to do are very strategic with all their finances. They themselves, or their money managers, understand the tax plans inside and out. They arrange their affairs around those tax laws so that they can maximize every dollar they can. If the wealthy Long Island residents begin to see that by re-arranging their affairs, they can keep a significant amount of money in their pocket – they will likely do it. We keep seeing articles in the news regarding New Yorkers fleeing to states that have better tax benefits. I don’t know if any of these claims have been confirmed, but its certainly not out of the realm of possibility. The Real Deal cited a report where moving to a state like Florida can add up to 12% to your bottom line. When your talking about big numbers, 12% can be significant to a wealthy person.
In the last year and a half, the luxury market on Long Island has consistently declined over time. Whether you can attribute that specifically to SALT is not conclusive. There are a lot of different things happening in our very fast changing world that can all be contributing factors. One thing that we know, is that it doesn’t help.
In the middle-class price points, we likely won’t see any disruption. We expect the $400,00 - $600,000 price points to remain unscathed from this tax plan. In fact, like most other parts of the country, it may even help if a married couple takes the standard deduction of $24,000.
On the flip side of the coin, not everyone is here for the tax benefits. Nassau and Suffolk county are end-user real estate markets. Most of us are here because our ancestors laid down roots, and we plan to be here for generations to come. furthermore, we are in one of the greatest places in the world to live. We have 4 seasons – white winters, a colorful spring & fall, and warm summers with some of the best beaches in the world. We’ve got some of the best school systems in the country, the greatest city in the world a quick train ride to the west, and the Hamptons to the east. When you think about it like that, paying a little extra in taxes really isn’t so bad.