What the House GOP’s tax plan means for the Hamptons market

Loss of the mortgage-interest deduction on second homes could lead to more rentals

East Hampton
East Hampton

If one of the House GOP’s tax plans becomes law, buyers and brokers in the Hamptons are well prepared. Due to limitations or an outright killing of the mortgage interest deduction for second homes, more high-end vacation properties could be listed as investment properties in the form of rentals.

“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,” Brown Harris Stevens agent Jessica von Hagn told Bloomberg. “There’s only a certain number of renters every season and we just keep adding more and more inventory.”

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The strategy effectively turns buyers’ vacation homes into businesses and could lead to both falling rents and falling home values if the markets see a sharp increase in properties for lease. Brokers expect homes costing less than $2 million to feel the brunt of the impact.

If the House bill passes, this would likely hit markets where vacation homes are common like the Hamptons, Cape Cod and Lake Tahoe. The Senate bill preserves the second-home mortgage break, making this a likely non-issue.

The House plan would have multiple other potential effects on New York City’s real estate industry as well. It could help condo developers save money but hurt the affordable housing market and make it harder for people to buy homes. [Bloomberg] – Eddie Small