Tax Law Change Causes 'Modest Headwind' for Home Values

The new cap on state and local tax (SALT) deduction as part of the Tax Cuts and Jobs Act has made an impact on home values.

According to new analysis, ZIP codes with higher concentrations of homeowners who historically used the SALT deduction have encountered a slight chill on home value growth since the new tax law was enacted earlier this year. Aaron Terrazas, senior economist for Zillow, finds that the same cannot be said for communities where the majority of taxpaying homeowners historically took the mortgage interest deduction (MID).

Roughly one in five tax filers (22 percent) utilized the SALT deduction in the typical U.S. ZIP code in 2015. In those areas, annual home value appreciation in July 2018 was about 0.3 percentage points slower than the pace in the fall of 2017, prior to passage of tax reform in December 2017. In ZIPs with the most intensive use of the SALT deduction – the 90th percentile of ZIP codes, where 44 percent of tax filers typically took the SALT deduction – home value appreciation had slowed by 0.6 percentage points.

Read more