What Is the Future For SALT Cap on Deductions for Homeowners?

The Weekly Recap

Good morning and happy Friday! The New York luxury housing market is back, the Nasdaq closed above 20,000 for the first time, chances for a Fed rate cute at next weeks meeting is 94% according to betting markets which is inline with how the rest of Wall Street is feeling. Markets continue to be incredibly optimistic as we approach Trump 2.0, annual inflation increased to 2.7% which was expected while new job numbers exceeded expectations. Mayor Adams’ plan for the ‘City of Yes’ has passed which aims to create 80,000 new units in the next 15 years by updating zoning rules, the Mets are paying an insane amount of money for someone to play baseball and Gen Z has discovered going to the mall.

If you missed last weeks newsletter on How’s the Market?, you can read that through the link.

What is the Future For the SALT Cap on Deductions for Homeowners?

For some fun historical context, the current SALT cap on deductions was introduced in 2017 in the Tax Cuts and Jobs Act of 2017, which was signed by Donald Trump. This law limited the amount of SALT or State And Local Taxes, that could be deducted from federal taxable income. That limit was set at $10,000. Now, while the cap was part of broader tax reforms that lowered federal income rates, it disproportionately affected taxpayers in high-tax states like New York, New Jersey and California.

This cap impacts homeowners more significantly than renters because it directly limits the tax benefits that homeowners traditionally relied on. Here is the impact that SALT has had on homeowners:

Higher Property Taxes: In states like NY and CA, property taxes are a large part of annual carrying costs for a home. If your yearly property tax bill is $15,000, you are only allowed to deduct $10,000, losing the benefit of the remaining $5,000 on your federal taxes.

Mortgage Interest Deduction: In years passed, before the cap limit, homeowners would combine their deduction from mortgage interest payments and their property taxes. If you owned an expensive property with a large mortgage you were still capped at $10,000 per year.

The Incentive for Homeownership: Tax deductions have historically incentivized homeownership by reducing its overall cost. While SALT is in place, the financial benefits of owning a home are limited.

With this in mind, the Trump 2.0 administration has considered raising the SALT write-off limit from $10,000-$20,000.

Summary of Market Effects for Increasing Deduction

The current SALT caps are set to expire in 2025 which is priming the conversation for what the future of this cap can do to real estate. We could potentially see an increase demand for homes, an increase in potential supply with developers feeling confident that the market is strengthening and an economic boost to local areas that would see residents spending more money in local businesses. The effectiveness of increasing the cap (or lifting it altogether) would depend on tangential policies that address broader issues in housing supply such as zoning reform, affordability and infrastructure investment.

Market Performance

Here are how some other indexes and asset classes have performed as of this morning’s opening bell.

NYC Market Update

Here is a view of new inventory that has come onto the NYC market over the past WEEK as well as newly signed contracts in Manhattan which saw a 79% increase week over week.

Mortgage Rate Update

Mortgage rates decreased for the third week in a row. The combination of mortgage rate declines, consumer income growth and a very bullish stock market have increased homebuyer demand in recent weeks. As the outlook for the housing market is improving, buyers are still facing affordability challenges.

News You Can Use

• The New York Luxury Housing Market is Back Bloomberg

• Citigroup Joins Wall Street Peers in Forecasting 25bps Rate Cut by Fed in December Reuters

• Betting Market Kalshi Shows There is a 94% Chance The Fed Cuts Rates Next Week Kalshi

• Wall Street Hopes that Rate Cuts Will Force Clients Out of Cash in 2025 Reuters

• Big Banks Find Many Reasons to be Optimistic About 2025 Yahoo Finance

• Trump Tells NBC He Has No Plan to Remove Powell as Fed Chair Bloomberg

• Merger Monday Spree Signals Revival of Deals Since Trump Victory Financial Times

• The NYC Office Market Is Roaring Back to Life NY Post

• Goldman CEO Says Deal Making Could Surpass 10-Year Averages in 2025 Reuters

• US Small Business Sentiment Hits 3 ½ Year High Reuters

• Wall Street Is Betting Billions On Rental Homes Wall Street Journal

• Nasdaq Tops 20,000 for First Time as Big Tech Surges Yahoo Finance

• Payrolls Increased 227,000, More Than Expected CNBC

• US Households’ View of Finances Are Brightest Since Early 2020 Bloomberg

• Annual Inflation Rate Accelerates to 2.7% in November, As Expected CNBC

• Activist Investors Pushes Macy’s for Changes, Including New Real-Estate Unit Wall Street Journal

• NYC’s Five-Star Pierre Hotel Near Central Park Is on the Market Bloomberg

• Mets Sign Juan Soto to the Largest Deal in Professional Sports History ESPN

• Gen Z to the Rescue? How Malls Are Winning Over a Generation of In-Person Shoppers CNBC

The Deep Insight

Contact Me

Feel free to reach out to discuss more in-depth about your real estate goals, share your thoughts about my newsletter, or to share what you're experiencing in this market. Looking forward to hearing from you!