Real Estate
What the tax bill means for buyers, homeowners
There’s good news and there’s bad news
There’s good news and there’s bad news in the new tax bill.
In case you missed it, the hotly debated new tax bill has officially passed. Since real estate is one of the key areas of change in the bill, everyone is asking us, “What does the new tax bill mean for me? Is this good news or bad news for D.C.-area buyers and sellers?” The answer, as it so often is in real estate is, “it depends!”
The initial version of this new tax bill would have been troublesome for real estate values in our area. It slashed the mortgage deduction in half, had big changes for capital gains, and made it much more expensive to move. Several changes were made between the initial draft and the final form, which makes the final impact of the bill more of a mixed bag. There’s good news and there’s bad news.
So without further ado, here are the main changes and takeaways affecting homeowners in our area.
MORTGAGE INTEREST DEDUCTION
THE CHANGE: Through the end of 2025, new homebuyers will only be able to deduct interest on the first $750,000 of a mortgage (down from $1 million). In 2026, the deduction cap will revert to $1 million in loan value. Existing mortgages will be unaffected.
THE IMPACT: None for existing homeowners or new buyers with loan amounts under $750,000. While this reduction is bad news for upper price point buyers, the news is much better than the original proposal, which was a reduction to $500,000 and would have affected the majority of mortgages in our area. Remember, these are loan amounts – NOT sales prices. Thus, the only impact will be for buyers with loans above $750,000 – which most often is homes above $825,000 – depending on how much the buyer is financing. While it is possible the bill could cause a small slowdown for “move-up” buyers in our market, we don’t anticipate this causing a major change now. The impact of the new cap will probably make it less attractive to refinance in upper brackets. If your loan existed before December 14, 2017 up to $1,00,000 can still deduct the interest as long as the new loan does not exceed the amount refinanced.
Let’s look at Buyers A & B to see how this new cap comes into play.
Buyer A is putting 10% down on a sales price of $825,000, meaning he has a loan of $750,000, which is the deduction limit. Buyer A would be unaffected.
Buyer B is putting 10% down on $1,000,000, which is a loan amount of $900,000. The deduction can still be taken, but can only be taken on the first $750,000. Buyer B would not be able to deduct the interest paid on $150,000 of the loan (the difference between $750K-$900K).
HOME EQUITY LOAN INTEREST DEDUCTION
THE CHANGE: The new tax bill also suspends the deduction for interest on home equity loans until 2026. Currently, deductions are allowed for loans up to $100,000. Caveat: the interest on a home-equity loan can be deducted if the proceeds are used to substantially improve the home.
THE IMPACT: This change makes it less attractive for homeowners to take out equity lines on their homes in order to do minor renovations or use their home’s equity to pay for other things like kids’ college tuition or other big purchases. While this change is certainly frustrating for those planning to take advantage of these loans, it shouldn’t affect the housing market in a significant way since it is typically utilized by homeowners who have been in their properties for several years (and have equity) and are planning to stay longer to regain the equity over time.
MORTGAGE INTEREST ON A SECOND HOME DEDUCTION
THE CHANGE: The interest deduction on loans for a second home will still be allowed. However, homeowners can only deduct the first $750,000 of interest on the combined value of loans on their first and second homes.
THE IMPACT: Owners of multiple properties will feel this one. The bad news is there is likely to be a large impact on housing markets in resort or second home areas, as it will certainly be more expensive to own more than one property. While we are not a second home market, we have many clients buying properties in our area to be near their kids and grandkids. Similarly, we have many service members who take advantage of their housing allowance and low down payment opportunities with VA loans to keep their homes in other areas while buying a home when they are stationed here in the DC area. The impact of this change remains to be seen.
“SALT” DEDUCTION FOR STATE & LOCAL PROPERTY TAX
THE CHANGE: Individuals can only deduct up to $10,000 in state and local income and property taxes or state and local property and sales taxes. Previously, there was no cap on this deduction.
THE IMPACT: Homeowners living in high property tax states (like New Jersey with an average rate of 2.38%) will likely see an increased tax bill come April. Nationally, ATTOM Data Solutions estimates that 4.1 million Americans pay more than $10,000 in property taxes so it will affect many Americans. Locally, average property tax rates are more reasonable (Maryland is 1.1% which is #22 nationally, Virginia is .78% which ranks #37 nationally and D.C. is .57% bringing up the rear at #46 nationally), so it should have less of an impact here than it does in some of the higher-taxed states.
DEDUCTIONS FOR WORK-RELATED MOVING EXPENSES
THE CHANGE: Reasonable moving expenses for work-related relocations are no longer deductible – with the exception of those in the military.
THE IMPACT: While it is possible that fewer people will want to move due to this deduction, generally these types of moves come with increased salaries and opportunity, so we don’t anticipate big changes to the market because of this change.
CAPITAL GAINS
NO CHANGE. Despite some back and forth, the deduction for up to $500,000 in capital gains (or $250,000 for single filers) from selling a primary home remains (so as long as it has been the primary residence for two of the last five years). This is a big win, as previous versions of the bill sought to make the tenure requirements five of the last eight years as the primary residence.
SO, WHAT DOES THE NEW TAX BILL MEAN FOR HOMEOWNERS & HOUSE HUNTERS?
The good news is that many of the real estate changes in the new tax bill will have much less of an impact than previous versions of the bill suggested. On the plus side, it’s possible that the impact of the lowered deduction could be offset by lower income taxes for these high-end homebuyers, specifically business owners or those in “pass-through” businesses, which will see a big tax deduction on their income.
The bad news is we might see an impact in our “move up” market. We will carefully watch buyers’ reactions to the home mortgage deduction limit to $750,000, which could make “moving up” slightly more difficult in upper bracket price points. This change is likely to have the biggest impact in our market. Nationally, we may see a decrease in people buying vacation properties so resort areas will likely take a hit. We’ve read statistics that predict the changes could lower home values by 4%.
The bottom line? While there might be some slow down and a temporary dip in values while everyone comes to terms with the changes in the new tax bill, we don’t anticipate a significant long-term effect at this point. This is certainly a change from our perspective just a few short weeks ago when the bill was still in draft form.
We have been following this bill closely and know how impactful these changes are to your life. We’re here to help you through this complex process. If you are thinking of buying or selling and wondering what these changes might mean for you and your bottom line, please reach out. We are always happy to help.
Allison Goodhart DuShuttle is lead agent for The Goodhart Group, Alexandria’s and McEnearney Associates’ top-producing real estate team. In 2015, she was nationally recognized by Realtor Magazine, being named to its “30 Under 30” club. Allison can be reached at 703-362-3221 or [email protected].
Real Estate
Avoiding the basement blahs
Renovating a lower level can add significant value to your home
Sadly, we have waved goodbye to summer and are now slowly shifting from enjoying outdoor activities to things we can do indoors. If you are lucky enough to have a basement, renovating it into livable space can be a great winter project to dramatically increase the functionality and value of your home.
Basements come with unique challenges due to their location below ground level, and overlooking critical aspects can lead to long-term problems. They are particularly vulnerable to dampness. Failure to address moisture can lead to mold growth, structural damage, and health hazards.
To tackle moisture control, start by checking for water leaks or seepage through the walls and floor. If moisture is present, you may need to apply waterproofing solutions to the exterior or interior walls of your home. Installing a vapor barrier is advisable to prevent condensation from damaging insulation and walls.
Make sure the basement has proper drainage systems, such as a sump pump and foundation drainage. The sump pump can remove water that collects around the foundation, while an effective drainage system redirects water away from the home. Installing a dehumidifier can also help.
Basements also tend to be colder than the rest of the house. Proper insulation in the walls and floor helps regulate temperature, reducing heating costs in winter and maintaining a cool, comfortable, and energy efficient environment in summer. Insulating the ceiling can reduce noise transfer between the basement and the upper floors, making the space quieter and more private.
Before any significant work begins, it’s crucial to assess the basement’s structural integrity. This includes checking the foundation for cracks or signs of shifting, which could indicate a bigger problem, particular with the plethora of old houses in the area.
If you notice any large cracks or signs of movement, consult a structural engineer or foundation expert to determine whether repairs are needed. Small cracks can be sealed, but larger ones may require reinforcement or more extensive foundation work.
Depending on local building codes, you may need to install egress windows if you are adding bedrooms or turning the basement into a rental unit. Egress windows provide an escape route in case of emergencies and allow more natural light to enter the space, making it feel more welcoming.
When adding a bathroom or kitchen, you’ll find that installing plumbing in a basement can be more challenging because of the need to pump wastewater upwards. You may need a macerating toilet system or a sewage ejector pump to manage this. I learned this the first time I found that, contrary to what we have been told, water can indeed travel up.
Adding more outlets, lighting, appliances, and ventilation systems may necessitate electrical upgrades. Since basements are often unfinished, you may have exposed wiring, which should be properly enclosed or rerouted to meet code. Depending on the scope of the renovation, you might need to upgrade your home’s electrical panel to handle the increased demand.
Proper ventilation is often overlooked in basement renovations but is essential for maintaining air quality and preventing the buildup of stale air or harmful gases. Installing mechanical ventilation, such as an HRV (Heat Recovery Ventilator) or an ERV (Energy Recovery Ventilator), can help ensure a consistent flow of fresh air in the basement.
Radon, a naturally occurring radioactive gas, can enter homes through cracks in the foundation. Since radon exposure is a leading cause of lung cancer, it’s wise to test for it before beginning the renovation. If elevated levels are detected, you may need to install a mitigation system.
Once the technical aspects are addressed, focus on creating a functional and aesthetically pleasing layout. The design of your basement will depend on how you plan to use the space, whether it’s a guest room, home theater, office, workout area, or game room.
Since natural light is limited in basements, it is important to plan your lighting carefully. Recessed lighting is a popular choice because it doesn’t take up ceiling space, but you should also consider adding floor lamps and sconces to make the space feel brighter and more inviting.
Choose flooring that can withstand moisture, such as vinyl planks, tile, or sealed concrete. Since basements can double as storage areas, consider incorporating built-in shelving, closets, or under-stair storage to maximize the available space.
Whether doing it yourself or hiring professionals, renovating a basement is a rewarding project that can add significant value to your home, but it comes with challenges. From moisture control and insulation to plumbing and air quality, careful planning is crucial to ensure a comfortable, functional, and safe space to enjoy indoor hobbies and emerge from winter free from the Basement Blahs.
Valerie M. Blake is a licensed Associate Broker in DC, MD & VA with RLAH Real Estate / @properties. Call or text her at (202) 246-8602, email her at DCHomeQuest.com, or follow her on Facebook at TheRealst8ofAffairs.
As interest rates begin to cool off for the first time in a few years, prospective “first time homebuyers” may have their wheels spinning again about whether it’s a good idea to buy a home. Still, the idea of home ownership may feel out of reach for some; historically, the prevalence of homeowners has been low in certain subsets of the population. It wasn’t until the 1900’s that laws were enacted to grant women and people of color equal access to property ownership:
1968: The Fair Housing Act prohibited discrimination in home buying, homeownership, and rental real estate based on sex, race, religion, and other protected classes.
1974: The Equal Credit Opportunity Act (ECOA) prohibited discrimination in consumer credit practices based on sex, marital status, and other factors. This made it easier for women to buy homes by allowing them to apply for loans and credit without a male co-signer.
Even with these laws in place, socioeconomic disparities and lack of access to generational wealth have slowed progress in this area. Generational wealth occurs when resources are passed on to family members when the family homeowner or the head of household passes away. In areas like D.C. this type of asset can be worth hundreds of thousands of dollars, and can be used to pay off student loans, help younger members of the family purchase their first or second homes wherever they live, or be invested in other ways.
While this may have been the key to buying property in the past, people today are pursuing homeownership for themselves and their own means — especially women. Many real estate agents in the D.C. metro area can testify that they are working with individuals who are the first in their family — and often the first woman in their family — to buy a home. The days of waiting until marriage to invest in property are slipping away; these days people marry later, may not stay married, or may choose not to marry at all. “I didn’t consider buying a home at first, because I didn’t really see myself as a “typical” homeowner; I was single and wasn’t sitting on a stockpile of cash,” says Jordyn White, a D.C. resident who bought her first home at 29. “A trusted friend encouraged me to explore first-time homebuyer programs, and I’m glad I did. My monthly mortgage payment is similar to what I would likely pay to rent in the same area, and now I have created a path to generational wealth for my children.”
The rates of homeownership for people of color and women are steadily rising. A 2023 Pew Research Center survey using 2022 census data found that single women owned 58 percent of the nearly 35.2 million homes owned by unmarried Americans, while single men owned 42 percent. Single homeowners have peace of mind in knowing that they own assets by themselves.
Compass real estate agent Katri Hunter has helped many of her clients buy their first home. She reports, “I find more and more that I have single clients that approach me in their early/mid-30’s and say that they thought they would be buying their first property with a significant other and then decided to take things into their own hands … I tell people all the time to consult an estate planner when and if they do decide to get married to discuss pre-marital assets and keeping those in their own name. I think people really take more pride and ownership buying property on their own rather than something they dread.”
Katri Hunter can be reached at [email protected]. Joseph Hudson is a referral agent with Metro Referrals. He can be reached at 703-587-0597 or [email protected]
Real Estate
Ensuring safer water in rentals with ‘Lead Free DC’ initiative
An excellent opportunity for landlords to replace old service lines
Maintaining a safe and healthy environment for your tenants is a top priority as a landlord in the District of Columbia. One critical aspect of this responsibility is ensuring the water in your rental properties is free from lead contamination. The “Lead-Free DC” initiative, led by DC Water and supported by the District of Columbia, offers an excellent opportunity for landlords to replace old lead service lines and contribute to the broader effort of safeguarding public health.
Why Lead-Free Water Matters
Lead exposure is a serious health concern, particularly for young children and pregnant women. However, even in rental properties where no small children currently reside, lead in drinking water poses an ongoing risk to all occupants. Long-term exposure to lead can lead to various health issues, including cognitive impairment, cardiovascular problems, and developmental delays. As such, addressing lead pipes is not just a matter of compliance but a strategic investment in the long-term value and safety of your property.
Resources Available to Landlords
The District of Columbia, through DC Water’s “Lead-Free DC” initiative, provides several resources to help landlords replace lead service lines:
1. Free Pipe Replacement: DC Water offers free replacement of lead pipes on public property, such as the pipes running under streets and sidewalks. This service is available to all property owners, including landlords, and significantly reduces the cost burden of making your rental property lead-free.
2. Partial Replacement Assistance: For lead pipes on private property (e.g., those running from the property line to your building), DC Water offers partial financial assistance. The cost to replace these pipes is typically shared between DC Water and the property owner, reducing the overall expense.
3. DC Lead Pipe Replacement Assistance Program (LPRAP): This program specifically helps low-income residents replace lead pipes on their property at no cost. While it primarily targets homeowners, landlords with qualifying properties may also benefit from this program.
4. Federal Programs: The U.S. Environmental Protection Agency (EPA) and the Department of Housing and Urban Development (HUD) provide grants and low-interest loans to property owners for lead hazard reduction, including pipe replacement. These programs can further alleviate the financial burden associated with removing lead from your rental properties.
Strategic Value of Going Lead-Free
Investing in lead pipe replacement is a strategic move that offers significant long-term benefits:
• Increased Property Value: As awareness of lead-related health risks grows, properties with modern, lead-free infrastructure are likely to become more desirable and command higher market values.
• Tenant Retention and Attraction: Tenants increasingly prioritize health and safety in their living environments. A lead-free property can be a key selling point, helping you retain current tenants and attract new ones.
• Regulatory Compliance: As regulations surrounding lead in drinking water continue to tighten, staying ahead of the curve can save you from potential legal issues and costly retrofits in the future.
• Community Contribution: By participating in the “Lead-Free DC” initiative, you are not only protecting your tenants but also contributing to the broader effort of making the District of Columbia a healthier place to live.
Understanding Potential Costs
While much of the pipe replacement work is covered by DC Water and other programs, there may be some additional costs to consider. For example, once the old lead pipes are removed, the area where the pipes were accessed might need restoration. This could include patching up driveways, sidewalks, or landscaping around the foundation of your property. Although these costs are relatively minor compared to the health and safety benefits, it’s essential to budget for them when planning the work.
A “No-Brainer” Decision for Landlords
Replacing lead pipes is more than just a necessary update—it’s a no-brainer decision that will pay dividends in the long run. The peace of mind that comes from knowing your rental property is free from lead risks is invaluable, and the potential increase in property value and tenant satisfaction makes it a wise investment.
Take advantage of the resources available through the “Lead-Free DC” initiative and other programs to ensure your rental properties offer safe, lead-free water for all tenants, now and in the future.
Further Access Information for Readers:
DC Water – Lead-Free DC Program:
https://www.dcwater.com/resources/lead
This page provides detailed information about the Lead-Free DC initiative, including how to apply for pipe replacements and available assistance programs.
DC Water – Lead Pipe Replacement Assistance Program (LPRAP):
This page offers insights into the Lead Pipe Replacement Assistance Program, focusing on how low-income property owners can receive help in replacing lead pipes.
EPA – Lead in Drinking Water:
https://www.epa.gov/ground-water-and-drinking-water/basic-information-about-lead-drinking-water
This URL covers essential information on the risks of lead in drinking water and federal programs available to help property owners.
Scott Bloom is owner and Senior Property Manager of Columbia Property Management. For more information and resources, go to ColumbiaPM.com.
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