The real estate landscape is continuously evolving as local, state, and federal laws and regulations are revised, implemented, and repealed. Each of these changes has a direct impact on homeownership, affecting current and prospective homeowners to varying degrees.
Impact of Federal Law Changes
In 2017, the United States witnessed an overhaul of the federal tax system with the passing of the Tax Cuts and Jobs Act. In an effort to simplify the tax code, new limitations were introduced on the mortgage interest deduction, a critical tax benefit for homeowners. Previously, homeowners could deduct interest paid on mortgage debt up to $1 million. Today, the deduction is capped at $750,000 of mortgage debt for loans taken out after December 15, 2017.
This change has effectively made homeownership more expensive in areas with high property values. Furthermore, the increased standard deduction and limitation on state and local tax (SALT) deduction have also served to reduce the tax advantages of homeownership.
State and Local Law Changes
Property laws are not solely dictated at the federal level, but also at state and local levels. These often offer a more direct impact on homeownership. For example, in California, Prop 19 was passed in November 2020, which significantly changed property tax rules. Under this law, homeowners who are 55 or older, or those who are facing a natural disaster, can transfer their tax assessments anywhere within the state. Also, inherited properties would no longer be eligible for tax assessment transfer, except those used as primary homes or farms.
This law encourages seniors to relocate, potentially freeing up housing inventory. However, it may also result in more taxes for heirs and discourages keeping real property within families.
Landlord-Tenant Laws
Covid-19 pandemic resulted in some critical changes to landlord-tenant laws. For instance, the Coronavirus Aid, Relief, and Economic Security (CARES) Act imposed a nationwide eviction moratorium through July 25, 2020. After the CARES Act expired, the Centers for Disease Control and Prevention (CDC) issued a new moratorium, which extended tenant protections until March 31, 2021. For landlords, this means that the income from rental properties can be very unreliable, thereby indirectly affecting homeownership.
Zoning Laws
Another legal aspect impacting homeownership is the changes in zoning laws. For instance, upzoning, which allows for more density in buildings, has seen an increase. By changing land-use restrictions, such laws can either increase or decrease property values. This availability changed significantly due to revised zoning laws that encourage multi-family homes in place of single-family homes.
Conclusion
Changes in property laws can significantly impact homeownership by affecting property values, taxes, rental income, zoning laws, and more. As such, both current and prospective homeowners must remain updated with the latest changes in property law to make informed decisions. Getting counsel from a real estate attorney may be beneficial to fully understand how these changes could affect individual real estate circumstances.
Frequently Asked Questions
How do federal laws impact homeownership?
Federal laws, such as tax laws, greatly influence homeownership. The Tax Cuts and Jobs Act of 2017, for example, affected the mortgage interest deductions, making homeownership more expensive in areas with high property values.
How do state property laws affect homeownership?
State property laws can affect homeownership directly. For instance, California’s Prop 19 changed property tax rules significantly, influencing both current homeowners and people looking to buy homes in the state.
What is the impact of landlord-tenant laws?
Landlord-tenant laws can affect homeownership by increasing the risk for those who intend to rent their property by making rental income unreliable.
How do zoning laws influence homeownership?
Zoning laws can increase or decrease property values by dictating how a property can be used, such as whether it can be used for multi-family homes or single-family homes.
