May 15, 2006

When the US sneezes....

As the saying goes, when the US sneezes Bermuda catches a cold. Well, this unexpected change to the US tax code will surely have an impact on the local rental market as housing costs are no longer tax exempt:

"American taxpayers working abroad can deduct some housing expenses, a benefit that has helped attract American executives to jobs in high-cost European capitals such as London or Paris.

"But under the new system, this tax exemption on housing will be capped at $11,536, although is some cases the Internal Revenue Service could adjust it based on geographic differences in the cost of living."

There's a bit of wiggle room in that last sentence, and the bill hasn't been passed into law yet, but how many Americans currently residing in Bermuda pay more than $11,536 in rent? A fair amount pay that in a month! And how many Bermudians are highly leveraged based on the guarantee of that rental income? And how much of the current valuation of Bermudian real estate is driven by a crazy rental market, particularly at the high end?

Of course this is a tax issue. And I'm sure it's extremely complicated and some enterprising accountant will find a loophole, but I've got to believe that this will have an impact locally.

Posted by Christian S. Dunleavy