The Republican tax bill that appears headed for President Trump’s desk reduces the ability of home buyers to deduct mortgage interest, which will be a hit to home shoppers in Southern California and the Bay Area, where housing costs are sky-high.
But the interest provision is far more limited in scope than a previous proposal. Real estate experts and professionals said Tuesday that they don’t expect a big effect on home buying in the region, and that any ramifications will be largely restricted to well-to-do neighborhoods.
Making sense of the story:
- Under the new plan, which passed the House on Tuesday and was headed for a late vote in the Senate, buyers can deduct interest on mortgages up to $750,000, for homes bought after Dec. 15. (Homes purchased on that date or before then aren’t affected.) That’s down from the current $1-million limit, but an increase from a $500,000 cap that previously passed the House.
- That means a home buyer with a 20 percent down payment can purchase a $930,000 home and still deduct all the interest. Even for a borrower who took out a $1-million loan at 4 percent interest, $30,024 of interest payments are deductible in the first year, leaving $9,656 that isn’t.
- The bill also caps property and state income tax deductions at a combined $10,000 — about $8,500 less than the average deduction taken by Californians in 2015, according to the Tax Policy Center. Combined with the new cap on mortgage interest deductions, that could mean some households will have less to spend on housing, leading to price declines in some wealthy areas.
- The tax bill doubles the standard deduction, which means fewer households will itemize. That may result in people buying a less expensive house because they couldn’t write off any interest
- Some experts predict that by adding an estimated $1.5 trillion to the federal budget deficit over 10 years, the tax bill will put upward pressure on interest rates — including mortgage rates, which have remained under 5 percent for the last six years.
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