The cap on property taxes will have
Parents are increasingly helping their adult children buy their first home. In fact, a new study suggests that if families were considered a financial institution, the “Bank of Mom and Dad” would be the seventh largest mortgage lender in the country.
Parents and grandparents supported the nationwide purchase of $317 billion worth of property—1.2 million homes—last year, according to a newly released study from the Legal & General Group, a multinational financial services institution.
One in five of buyers received gifts or interest-free loans from family members, the study shows. The average amount buyers received from them was $39,000. The Pacific region saw the greatest share of young adults receiving financial help in buying; the Rocky Mountain region saw the lowest.
More than half—51 percent—of prospective home buyers under the age of 35 say they expect to have help from their family or friends when buying a home. And young adults who already have purchased a home say that without the gift from the “Bank of Mom and Dad,” they would have had to delay their home purchase for at least three years.
“For many, perhaps most,young adults, buying a house without help is an increasingly unattainable goal,” says Nigel Wilson, chief executive at Legal & General Group. But Wilson calls it a worrisome trend that so many young adults are relying on help from family and friends to buy a home.
For example, family and friends who provide financial assistance may be putting their own finances in jeopardy to do so. For example, they reported taking out a loan (15 percent), raiding their 401(k) savings (8 percent), downsizing their own home (6 percent), or coming out of retirement (3 percent), the study showed. The study authors warn that too many of the younger generation may be dependent on their parents and grandparents to buy a home, even if it comes at a financial strain to the gift giver.
The Bank of Mom and Dad “reflects, first and foremost, a housing market where significant problems remain in matching the supply and demand of different types of housing, most notably starter homes and affordable housing of all kinds,” Wilson says. “As the population changes and the millennial generation strives to join the homeowning democracy, new thinking is due on meeting the needs and aspirations of Americans.”Source: Legal & General Group
The state and local tax deduction limits will largely impact homeowners in high-tax states, such as New Jersey, New York, and California. More than half of the tax increases from the SALT cap will affect the top 1 percent of income earners, according to the Independent Tax Policy Center in Washington, D.C.
However, tax filers who reach the SALT cap won’t necessarily see a rise in their total tax bill. Some filers may benefit from other parts of the 2017 Tax Cuts and Jobs Act, such as eliminating the alternative minimum tax, reducing marginal tax rates, or doubling the standard deduction that taxpayers may take, The New York Times reports.
Some lawmakers from high-tax states, such as New York and New Jersey, have proposed efforts to try to allow residents to work around the caps. One proposal was to classify local property tax payments as charitable contributions, which are deductible and not subject to the SALT cap, The New York Times reports.
But the IRS warned taxpayers earlier this year that such attempts likely will not work. “Despite these state efforts to circumvent the new statutory limitation on state and local tax deductions, taxpayers should be mindful that federal law controls the proper characterization of payments for federal income tax purposes,” the IRS states. Read the IRS’ guidelines.
Source: “SALT Limit Is Hitting 11 Million Tax Returns, Audit Finds,” The New York Times (Feb. 26, 2019)
