As Connecticut’s two senators threw support to a bill that would cancel a cap on IRS deductions for local taxes, a surge in Fairfield County home listings in the back half of 2018 continued into the first month of the new year.
In January, about 1,100 Fairfield County homes were listed for sale, a 10 percent bump from a year ago, according to aggregate town-by-town totals reported by William Pitt Sotheby’s International Realty.
The new additions intensified a trend since last August in which the region has seen steady increases in its monthly “inventory” of houses on the market compared to 12 months earlier.
With that trend now six months in duration, the spring real estate market is shaping up as the most competitive in years for sellers, with buyers having more properties to choose from. In theory, sellers will have to be more vigilant than ever in setting an initial price in order to lure interest during the critical spring season when families make choices in advance of the following school year.
For those exploring a sale, however, an overarching question remains: will buyers be as interested in upper-tier homes, as taxpayers absorb the sticker shock of the new, $10,000 cap on IRS deductions for state and local taxes and its implications for their federal tax obligations?
And is that $10,000 cap a major motivator for sellers heading into the 2019 spring selling season, for any looking to downsize locally or move out of Connecticut, with aggregate implications for the state economy?
According to estimates by the Government Finance Officers Association, 41 percent of Connecticut taxpayers claim deductions under SALT — averaging $19,650 a deduction, or more than $67,000 from this year through 2025 when the federal cap is scheduled to expire.
‘Not a rich person’s space’
On Wednesday, U.S. senators Richard Blumenthal and Chris Murphy expressed support for a proposed bill Stop Attacking Local Taxpayers — borrowing the SALT acronym — to remove the $10,000 cap.
Blumenthal described the cap’s impact as “devastatingly unfair” on Connecticut homeowners. Others supporting the legislation include U.S. Rep. Rosa DeLauro and Rep. John Larson.
As computed by a SmartAsset online property tax calculator based on average Fairfield County municipal tax rates, homes listed above $612,000 bump into the $10,000 local tax obligation that maxes out IRS SALT deductions.
As of Wednesday, 37 percent of Fairfield County’s listings were above that $612,000 threshold, according to Zillow.
After the SALT cap took effect as a result of the Tax Cuts & Jobs Act of 2017, Connecticut attempted to create a workaround for property owners, with former Gov. Dannel P. Malloy signing into law a new tax on limited liability companies and partnerships — which until now passed through profits tax-free to members and partners.
In transferring the application of those income taxes from the individual to the entity, Connecticut created a tax credit for partners equal to about 93 percent of their own income, in effect providing an offset to lost SALT deductions above the $10,000 federal cap.
Through January for the first seven months of the state’s current fiscal year, limited liability companies and partnerships had filed taxes of $442 million under the new law. In budget projections released this week by the office of Gov. Ned Lamont, the state is projecting $600 million in revenue from those “pass-through” entities.
“I think we all recognize that it doesn’t take a whole lot in the state of Connecticut to get to $10,000 in state and local taxes,” said Scott Jackson, commissioner of the Connecticut Department of Revenue Services, speaking in late January in Hartford before a committee of the state General Assembly. “That’s not a rich person’s space. Those are working people.”
Jackson acknowledged it is a workaround that applies only to a narrow slice of people who have partnership or ownership interests in a business. He said his department is aware there is confusion about how to apply the new rules, including among certified public accountants, and that it will provide plenty of wiggle room for any retroactive changes to previous tax filings.
“I’m not going to lie, because it’s very complicated on both sides of the ledger,” Jackson said. “There’s going to be a stack of papers in my in box and I’m going to sign off on them. If they tell me the story that makes sense and if the crux of that story is, ‘We paid, the law went into effect and now we’re in this retroactive kind of a bind — that’s a story that makes sense to me.”
Extending to higher ranges
The momentum for new listings range across southwestern Connecticut, from a 175 percent spike in Redding from the town’s January 2018 totals, to a 34 percent decline in Darien. But the total inventory of listings remains well above prior-year levels, according to William Pitt Sotheby’s International Realty.
Fairfield led the region in January with 120 new listings, a 26 percent increase, with Stamford and Danbury both seeing new listings pop more than 30 percent. Bridgeport was up 16 percent, while Greenwich had a dozen fewer listings from January 2018 for a 15 percent decline.
On the Greenwich Streets blog of Mark Pruner, an agent in the Greenwich office of Berkshire Hathaway HomeServices New England Properties, Pruner indicated January sales figures would likely be impacted by the recent federal government shutdown.
Meanwhile, the town’s inventory is up in the $1.5 million to $3 million range that is targeted by some affluent families looking for “starter” houses in the Gold Coast town.
“That … continues the trend that we saw in the latter part of last year,” Pruner stated on his blog earlier this month. “This may be the next phase of the new federal cap on SALT deductions … having taken awhile to extend into the higher price ranges.”
Alex.Soule@scni.com; 203-842-2545; @casoulman