US government tax plan no worry for property buyers in upscale Hamptons area
The government is considering taking away mortgage-interest deductions for second homes, but buyers are preparing by turning their holiday homes into investment property
Out in the Hamptons, the US beach resort on Long Island favoured by Wall Street’s denizens, brokers and buyers already have a workaround for a tax-plan provision under consideration in Congress that would take away mortgage-interest deductions for second homes.
A client of Brown Harris Stevens broker Jessica von Hagn who works at a hedge fund decided to turn the holiday home he is buying into an investment property by setting up a limited liability company. That will allow him to deduct the interest and earn rental income at the height of the season from the modern home, which has four bedrooms, three bathrooms and a swimming pool and an acre of land and is located in the village of Bridgehampton.
For the buyer, that is a problem solved, while for the Hamptons market it means more high-end holiday properties will be listed as rentals, and so more competition and, most likely, falling rents.
“If you aren’t able to take advantage of the mortgage deduction for your second home, you’ll see more people putting their homes on the market and the inventory will grow,” von Hagn said.
“There’s only a certain number of renters every season and we just keep adding more and more inventory.”
In second-home markets across the US, from Cape Cod in Massachusetts to Lake Tahoe, California, brokers are bracing for a hit. A House version of the tax plan, passed by the Ways and Means Committee on Thursday, cuts the mortgage-interest deduction on second homes and on home-equity loans, which buyers sometimes take out on their primary residence to pay for a holiday property. The Senate’s plan, details of which were released late on Thursday, also does away with the home-equity deduction, but preserves the break for second-home mortgages.