Allot of predictions have been made about the recent tax bills impact on real estate. The National Association of realtor’s economist predict “The direct result of these changes would be a plunge in home values across America in excess of 10 percent, and likely more in higher cost areas.” (NAR). We all know real estate is local. Denver is radically different than Detroit so what does the tax change actually mean for Colorado?
The Bad: :<
Colorado is a high cost area:
Boulder’s median home price is over 800k and Denver metro is around 500k. Every mountain town is considered is also considered high cost. Many houses will max out the new mortgage interest deduction of 750k.
Colorado has allot of second homes:
With the mortgage deduction maxed out at 750k, if borrowers don’t max this out on their first mortgage, they likely don’t have much room left for their second home. For example, in the past the total deduction was 1m, many would have a first mortgage of 500-700 on their primary and then buy a condo or house in the mountains and use the remaining allotment of the mortgage deduction.
Many Coloradoans use Home Equity Lines of Credit
Like many parts of the country Home Equity Lines of Credit (Helocs) are very popular in Colorado. As values increased through much of the state, property owners tapped into their large increases in equity. HELOCs will no longer be deductible and therefore this will be a tax increase for many users of lines of credit
The Good: 😊
Colorado overall is a low tax state:
When compared to many other coastal states, Colorado’s property taxes and income taxes are considerably cheaper. Under the new law deductions for property tax are capped out at 10k total. This relatively lower property and income tax should give Colorado a competitive advantage in attracting out of state businesses to the State.
Before talking about the impact to the tax plan it is important to mention why has Colorado been growing the last 20 years so rapidly
- Knowledge Center: Colorado and the front range population are extremely well educated. This has attracted employers and employees to the area
- Cheaper than the coasts: Although Colorado and the front range have gotten expensive, we are still considerably cheaper than other “knowledge” centers like Boston, LA, Seattle, etc…
- Quality of life: Overall the quality of life in Colorado is excellent compared to other locations from the mountains to the city. This quality of life is a major attractor to many relocators
Are any of the three factors above going to change radically as a result of the tax plan? It is doubtful that the three items above will decline substantially. Just the opposite is likely to occur. Colorado will become even cheaper than many other locations due to the cap on deductibility of state and local taxes.
The final word: 😊
The tax plan will likely increase the desirability of Colorado; quite the opposite of the gloomsday projections from the National Association of realtors. This increase in desirability will keep Colorado’s economy moving along and therefore real estate will continue humming right along.
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Written by Glen Weinberg, COO/ VP Fairview Commercial Lending. Glen has been published as an expert in hard money lending, real estate valuation, financing, and various other real estate topics in the Colorado Real Estate Journal, the CO Biz Magazine, The Denver Post, The Scotsman mortgage broker guide, Mortgage Professional America and various other national publications.
Fairview is the recognized leader in Colorado Hard Money and Colorado private lending focusing on residential investment properties and commercial properties both in Denver and throughout the state. We are the Colorado experts having closed thousands of loans throughout the state.
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