Longtime New Yorkers Joanne and Vince Intrieri left their 3,100-square-foot three-bedroom near the United Nations this year, trading it in for a sunny three-bedroom condominium in downtown Miami.
Joanne Intrieri, who has a construction and design firm that she is moving to Miami, and Vince Intrieri, who owns VDA Capital Management, were not ready to retire.
But they decided to move to the Florida coast to escape exorbitant taxes that they knew would be exacerbated by the Trump administration’s new tax law.
“My husband and I have been in New York City for more than 20 years, but we aren’t tied to an office anymore and our kids are older,” said Joanne Intrieri, 59. “Between the state and city taxes, plus about $50,000 in property taxes, it is a lot of money going out the door. Why do it?”
The Tax Cuts and Jobs Act, as the legislation is known, was passed last year and will be applied to 2018 returns, which are due in April 2019. The law limits the deductions taxpayers can take on property taxes and state and local taxes (known as SALT deductions) up to $10,000 — a cap that many New Yorkers easily exceed. For the highest earners, New York state’s income tax rate is 8.82 percent and New York City’s rate is 3.876 percent. Nearly half of Manhattan’s taxpayers have taken SALT deductions in the past, and the average deduction has been over $60,000 a year.
The new legislation also limits the deductions taxpayers can claim on interest for mortgages up to $750,000, down from the previous $1 million limit. Mortgages often surpass this cap in Manhattan, where the average sales price for a co-op or condominium was $2.09 million in the second quarter of this year, according to Douglas Elliman.
All told, more than 8 percent of New York state residents will face higher taxes for 2018, according to an analysis by the Tax Policy Center. For those with income in the top 1 percent, a much larger number — 29 percent — will see their income taxes rise.
The specter of higher taxes has prompted some New Yorkers, like the Intrieris, to seek relief by moving to lower-tax states, while others have deliberately sought out buildings with tax abatements to reduce their costs. Accountants say others are exploring different ways to minimize their tax bills, like converting part of a home into a business with a home office or through Airbnb for a tax deduction.
In anticipation of higher tax bills, the Intrieris and others have relocated to states like Florida, which has no income tax and low property taxes. “I work with a lot of clients in New York, Connecticut and New Jersey — so all high-tax states — and we are seeing a lot of them move south, especially to Florida,” said Robert Westley, a New York City-based certified public accountant. “With almost all of our clients it comes up, and I would say about half of them are really looking into it.”
An added incentive for moving is the fact that the new legislation preserved a tax break that allows married homeowners who sell their primary residence to shield up to $500,000 of their capital gains from the property, Westley said.
Shahab Karmaly, the founder of KAR Properties, a real estate development and investment firm, lives in Manhattan but has been taking steps to relocate his family and business to Miami. “If I didn’t have the added complexity of kids, then I would already be down there,” said Karmaly, who has been touring schools for his children in Miami.
Indeed, the Florida housing market has seen a bump since the tax law was enacted. In Naples, for example, sales of single-family homes priced at $2 million and above rose 25 percent in the second quarter of 2018, compared with the second quarter of last year, according to the Naples Area Board of Realtors. Pending sales of such homes in Naples are up 22 percent, while pending sales of similarly priced condominiums have risen 32 percent.
“Causality is difficult to quantify, but taxes are certainly playing a role,” said Niklas Ahola, a real estate adviser at Compass in Naples. “I have about 10 clients, including three from New York, who are fleeing high-tax states.”
At the same time, the housing market in New York has slowed this year, and real estate analysts believe that is also in part because of the tax changes. Home sales in Manhattan declined 16.6 percent in the second quarter of this year compared with the same period last year, according to Douglas Elliman. In Westchester, sales dropped 17.7 percent; in the Hamptons, they fell 12.8 percent.
“People have pressed the pause button and are waiting before they buy,” said Jonathan Miller, president of the appraisal firm Miller Samuel, which conducted the research.
In Brooklyn, housing sales also decreased in the second quarter, but at a more modest 5.7 percent. This may be in part because home values in the borough are lower, making property taxes lower and dampening the impact of the tax law.
While the new legislation largely benefits the wealthy and corporations, it hasn’t translated into a boon for high-end real estate in New York, Miller said. “When this was first announced, people said it would have no impact because they were going to get more money back on taxes,” he said. “But people don’t buy individual assets based on a basket of assets. It isn’t like people say, ‘I will pay more for my house because I got money back from taxes.’ It just doesn’t work that way.”
Some prospective buyers have focused their searches on buildings with tax abatements to limit their tax costs. Buyers at 550 Vanderbilt, a new development in Prospect Heights, Brooklyn, for example, benefit from a 25-year tax abatement. Owners of studios at the building pay as little as $18 a month in property taxes, compared to $563 a month without the abatement.
“It was a huge factor in our decision to buy here,” said Rebecca Miller, 33, who purchased a two-bedroom at 550 Vanderbilt with her husband, Adam Tau. “We got our recent tax bill, and it worked out to be about $42 a month. It would have been closer to $1,500 a month without the abatement,” she said.
Ryan Serhant, the associate broker with Nest Seekers International who is handling sales at 550 Vanderbilt, said that since the tax changes were implemented, “we have seen a massive uptick in people coming from Manhattan. Before the tax law passed, people paid attention to real estate taxes, but if it was a little more, they just wrote it off. Now you can’t do that.”
While it is clear the tax changes are having an impact on the real estate market, it is too early to know the full extent of the repercussions, said Adam Kamins, a senior regional economist at Moody’s Analytics. In New York, while there has been a slowdown, “the adjustment will take some time, both to show up in house prices and to be fully internalized by buyers and sellers,” he said. “In fact, it may not truly happen for many until they file their tax returns next spring.”
The American Institute of Certified Public Accountants said its accountants are exploring new ways to keep their clients’ tax bills down. One strategy would be to claim part of a home as a business expense. If a taxpayer has a home office, for example, or a room leased to a tenant or through Airbnb, it can be counted as a business expense and deducted, over and above the $10,000 cap on tax deductions.
“The rules are a little complicated, but if you qualify, and let’s say you have a home office that takes up 15 percent of the square footage of your home, you could take 15 percent off your property taxes and deduct it,” Westley said.
This article originally appeared in The New York Times.
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