Everyone has been talking about the Tax Cut and Jobs acted signed by Trump at the end of 2017. A growing list of wealthy buyers are now moving and investing in South Florida because of this new law, looking for a tax break.
That’s right! South Florida, especially Miami, is not just a paradise with endless sunshine… It is also a refuge for residents living in high tax areas such as New York or California. But why are Northers trying to run away from taxes now, as we know they have always been high? Mainly because after the approval of the “TCJA”, the law is capping a deduction for state and local taxes of only $10,000. High-income earners are now trying to invest in high-end luxury condos in Florida, mostly Miami, almost for the same price than the amount they would have to pay for taxes in their hometowns.
At the beginning of 2018, every realtor in Miami was hoping a huge decrease in luxury condo’s prices, as foreign buyers have depleted the luxury condo market. Ti says the truth, prices did drop, but not even near to what was expected. The city is still maintaining a high volume of sales compared to other states.
But let’s dig more on what this “new” tax law is… There is no better way to understand this than with an example. Let’s say that you live in a high-tax state like New Jersey, and you have a property from which you have to pay $14,000 in property taxes and you have to pay income state taxes of $18,000. In 2017, you would be able to deduct those $32,000 from the combined tax rate. This year the story is different. Out of those $32,000, only $10,000 are deductible. This $10,000 is near to nothing to wealthy investors that have property taxes of over $100,000. That is why they are trying to escape from this “government trap” to Florida. Also, this new law caps interest rate deductions to mortgages under $750,000 which hurts when you have property values which are far above.
Apart from losing a lot of Republicans (with huge portfolios) support, this law has created a “Tax Migration” into Florida. Almost 99% of the deals over $10 million are now pushed by this domestic migration. We have been witnesses of how the home prices in Miami have been rising all the way up since the approval of the law. To talk about numbers, condo prices have gone up by 2% from the previous year.
Speaking of Miami, this city has been the biggest winner from the law approval, as it has been attracting more North Easters than ever before! They are even stepping in after foreign buyers, who had been the #1 investors in Miami real estate after the financial crisis.
A shortfall of $2.3 billion, shows that New Yorkers don’t want to be there anymore. This is completely understandable if I must say…. Who would like to see a combined tax rate of 45% increase by 12 -50% this year? Even more when you know that there are better fishes in the sea. They clearly know that Florida is the best place to be right now, as everyone knows there would not be an increase in taxes this year, and there is not even estate tax! It is hard to compete against that…
It is not a surprise to see that Florida is having now the highest domestic migration in the country and that New York has been the biggest population loser. This population increase in Florida is pushing the creation of new jobs, that increased by 2.7% last year! New work seekers are coming looking for lower taxes, all-year summer and a better job opportunity. Apart from being tax heaven for investors, you can find deals such as unit #802 at the Continuum Condo South in South of Fifth for $1,880,000.