Homes worth $1 million or more will look more attractive to buyers who can afford them, a leading housing economist said, but the bill might discourage older homeowners of all stripes from downsizing early. iStock illustration
The One Big Beautiful Bill could see homeowners hold off on selling homes, further constraining the numbers of homes hitting the market across Massachusetts.
A top priority of President Donald Trump signed into law July 4, the legislation features a permanent extension of lower individual tax rates, a temporary quadrupling of the state and local tax, or SALT, deduction cap beginning this year 2025 and a permanent extension of the federal mortgage interest deduction.
But it’s the SALT deduction increase that could have the biggest impact on Massachusetts homeowners due to the increase in home values throughout the state, said Massachusetts Association of Realtors CEO Theresa Hatton.
The Massachusetts median single-family home sale price was $687,500 in June, an increase of 3.1 percent over June 2024, according to The Warren Group, publisher of Banker & Tradesman. It’s also 174 percent bigger than the statewide median in June 2017, the year Congress capped the SALT deduction at $10,000.
Luxury Homes Get Added Luster
Massachusetts was among the top states in the nation in regards to the number of tax returns that claimed SALT deductions according to a recent analysis by the Bipartisan Policy Center. Twelve percent of Bay State tax returns took the deductions in 2022, the sixth biggest share in the nation that year.
The increase in the SALT deduction cap will particularly provide help people looking to buy homes in expensive markets like Greater Boston, said Redfin chief economist Daryl Fairweather.
“People when they buy a home, they’ll be saving a bit of money, so they should theoretically be willing to spend a bit more money,” she said.
The biggest impact will be felt by people who own homes worth $1 million or more, she said, and could increase their property values by tens of thousands of dollars at the highest end of the market.
But the SALT cap increase could also have knock-on effects that could shrink the supply of homes on the market, Fairweather warned.
Older Owners Discouraged
Older homeowners are usually on a fixed budget if they’ve retired, so if their housing expenses decrease, it allows them to stay in their home longer, which they tend to prefer.
“Homeowners, when they feel the pressure from taxes, that’s when they might decide to list – say, somebody who’s near retirement. They don’t want this recurring tax on them. They might sell when their taxes are high, but hold on to their home longer if their taxes are low. So, I think for some homeowners this will mean that they’re less willing to sell,” Fairweather said.
Sellers’ attitudes have changed regarding how much they hope to make in a home sale, said Melvin Vierra, a Realtor with RE/MAX Destiny in Boston.
“People are becoming more frugal and looking at what they can actually make on the sale of their home,” he said. “People are looking at every penny and every dime and every cost.”
Historically, older homeowners were a major source of new listings in the Massachusetts market as they sought to downsize, but Baby Boomers have broken that mold.
This pipeline has significantly dried up since the COVID-19 pandemic, contributing to the state’s ongoing shortfall of homes for sale.
Sam Minton
Capital Gains Tax Unchanged
When it comes to the One Big Beautiful Bill legislation’s permanent extension of the mortgage interest tax deduction, though, it may not have a big effect on the local housing market.
Historically, the deduction has only been used by wealthy and upper middle-class taxpayers. The Brookings Tax Policy Center estimated that only about 8 percent of households in the U.S. benefitted from the mortgage interest deduction in 2024, and 75 percent of those who took advantage of it made over $200,000 per year.
Additionally, SALT deductions can only be claimed if you itemize your deductions on your federal tax return rather than taking the standard deduction. In 2020, just 10 percent of all households in the United States utilized itemized deductions.
Considering that the federal capital gains tax is still based on 1997 home values, said Hatton, the extension of the mortgage interest deduction won’t incentivize sellers to add inventory to the state’s housing market. Current homeowners and buyers will reap the most rewards.
But changing that capital gains tax benchmark, Hatton said, could have helped first-time buyers while helping seniors who are looking to sell their homes and downsize.
The idea was under consideration in Congress, she said, but it never made it into the final bill.
“Home values have increased so much” since 1997, Hatton said. “I think that’s going to be a significant impact, if it does ever change, in helping some of our seniors to be more encouraged to sell their homes if they’re not going to have to pay as much in capital gains to downsize, which will hopefully open up this starter-level [and] mid-level inventory of housing that really would help first-time home buyers getting into the market.”
