By Ben Eisen and Laura Kusisto
Larry Belardi and Bobbie LaPorte are longtime San Francisco
residents, but they are planning to leave California for Nevada
next year.
A turning point was the federal tax overhaul that Congress
passed in late 2017. The law made it costlier to own a house in
many high-price, high-tax areas, reshaping the economics of
homeownership in those slices of the U.S.
Two years after President Trump signed the tax law, its effects
are rippling through local economies and housing markets, pushing
some people to move from high-tax states where they have long
lived. Parts of Florida, for example, are getting an influx of
buyers from states such as New York, New Jersey and Illinois.
Many people saw their overall taxes go down after the 2017 law
was passed. But the law had two main changes making it tougher to
live in high-cost, high-tax states, especially compared with
lower-taxed options. It essentially curbed how much homeowners can
subtract from their federal taxes for paying local property and
income taxes, by capping the state and local tax deduction at
$10,000. It also lowered the size of mortgages for which new buyers
can deduct the interest, to $750,000 from $1 million.
These changes have the biggest impact on a sliver of the
population who have high incomes and live in expensive areas. They
tend to have white-collar jobs and the ability to pick up and move.
Many own their own businesses, work remotely or are nearing
retirement.
Critics say the changes have hurt everyone who lives in high-tax
states, by taking a bite out of tax revenue. New York Gov. Andrew
Cuomo, for example, panned the state and local tax cap last year.
"It has redistributed wealth in this nation from Democratic states
-- we're also called blue states -- to red states," he said at the
time.
The average property tax bill in the U.S. in 2018 was about
$3,500, according to Attom Data Solutions, a real-estate data firm.
But many residents in New York, New Jersey, Connecticut and
California had been deducting well over $10,000 a year. In
Westchester County, N.Y., the average property-tax bill was more
than $17,000, the highest in the country.
Among the people who are uprooting, many say they had long
considered a change. But they saw the tax law as a reason to
finally undertake the potentially difficult task of changing their
state residency.
"It was another bucket of straw on the back of the camel," said
John Lee, a wealth-management executive and longtime resident of
the Sacramento, Calif., area. Mr. Lee and his wife, Tracy, moved
their primary residence last winter to Incline Village, a resort
community on the Nevada side of Lake Tahoe.
The Lees kept their California home, where one of their six
adult children is living. That means they are still paying
California property taxes. But Mr. Lee estimates the move to
Nevada, which has no state income tax, whacked his state tax bill
by 90%.
In the 10 states that typically have the highest property taxes
and mortgage interest amounts, including California, New York and
Massachusetts, home-price growth dropped right after the tax law
passed, according to an analysis by Fitch Ratings Inc.
Home-price growth held steady for the 10 states that typically
have the lowest property taxes and mortgage-interest amounts,
including Tennessee, Missouri and Alabama.
Other factors affected home prices too, such as an oversupply of
high-end homes and rising mortgage rates at the end of 2018. But
the tax law played a key role, Fitch found.
Rick Bechtel, head of U.S. residential lending at TD Bank, lives
in the Chicago area and said he recently went to a party where it
felt like everyone was planning their moves to Florida. "It's
unbelievable to me the number of conversations that I'm listening
to that begin with 'When are you leaving?' and 'Where are you
going?' " he said.
The dynamic is affecting even states typically thought to have
low taxes. Mauricio Navarro and his family left Texas last year for
Weston, Fla. Neither state collects its own income tax, but Mr.
Navarro was paying more than $25,000 annually in property taxes in
the Houston area, he said. Texas ranks among the states with the
highest share of taxpayers who pay more than $10,000 in property
taxes, according to the National Association of Home Builders.
Filling out his 2018 tax returns helped motivate him to move
with his wife and two children, said Mr. Navarro, who owns a
software-development business.
"It was not that we were struggling," he said. "It's that we did
some analysis."
Mr. Navarro is renting but plans to eventually buy a home in
Florida. He expects his property tax bill will be lower than it was
in Texas.
Some of the most pronounced effects are playing out between
states with vastly different income-tax regimes.
California has lost residents to Nevada for years, but that
accelerated after the tax law passed. Nevada picked up a net of
28,000 people from California in 2018, according to the U.S. Census
Bureau. That is the second-highest year since before the financial
crisis.
Nevada home prices rose more than 12% from the end of 2017 to
November, roughly double the change in California prices, according
to online real-estate company Zillow Group Inc.
Ruchelle Stuart, a real-estate broker in Las Vegas, has tailored
her business around people looking to move from California. "The
reason people from California don't mind it so much here is that
home is only three and half hours away," she said.
More movers are on the way.
Mr. Belardi and Ms. LaPorte, who are planning to leave San
Francisco, recently bought land at Clear Creek. The golf course
development, on the Nevada side of Lake Tahoe, advertises that
state income taxes are "zilch."
The couple said that for years they have been growing tired of
state and local politics, as well as the difficulty of running
their two small businesses in California. Mr. Belardi does
construction consulting and Ms. LaPorte has an organizational
development advisory business. The 2017 cap on deductions was icing
on the cake, they said. They estimate the move will save them tens
of thousands of dollars annually.
"I just hope all the Californians going to Nevada don't turn
Nevada into a California," Mr. Belardi said.
Write to Ben Eisen at ben.eisen@wsj.com and Laura Kusisto at
laura.kusisto@wsj.com
(END) Dow Jones Newswires
January 25, 2020 05:44 ET (10:44 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.