Purchasing property in New Jersey is not usually as expensive as in New York, but the cost can still run high. Rent is also high compared to other states, so investors stand to make a profit anyway. Even so, increased property taxes can make quite the difference in calculating break-even and profit points.
CNBC reported in 2018 that property taxes had just spiked by a whopping 50%. Not surprisingly, the spike came from the rise in home prices over the years. What makes things even more difficult for homeowners is the new deduction cap set by the tax reform law.
Some neighborhoods worse than others
If 50% sounds horrible, then imagine 75%. This is how much property taxes increased by in Jersey City. It saw an increase to $29,026 from a previous average tax burden of $16,591. As home values rise, more property owners might feel tempted to sell and move into cheaper markets. However, many other cities across America have witnessed a similar problem. For example, in Law Vegas, property taxes have climbed 38% each year.
Why the tax law poses a problem
Prior to the tax reform that took effect in 2018, homeowners had no cap on how much they could deduct in local and state taxes. According to CNN, that limit now sits at $10,000. This created a substantial problem for homeowners in states with higher property taxes, which include not just New Jersey, but also Illinois and New York.
As more people get priced out of the market, they might turn to renting a home to secure a roof over their heads in their favorite cities. This, in turn, provides real estate opportunities for residential landlords.