California homeowners are in Washington’s tax overhaul crosshairs if the proposed tax bill became law today. The proposed tax reform would eliminate mortgage deductions for loans above $500,000 according to the Wall Street Journal which could have a substantial impact on California real estate markets. Here in San Diego 37% of home sales involve a mortgage which exceeds $500,000. As you move northward the figures increase to 44% for Los Angeles, 60% for San Francisco and 75% for San Jose.
To add bad to worse, the proposed reform would also limit property tax deductions to $10,000 per year, and eliminate the deduction for state income or sales tax. California real estate companies are very concerned about the impact this will have upon the housing market. The loss of the mortgage deduction alone may not have the detrimental impact of the three together, but the current proposal would significantly alter California’s rapidly appreciating real estate markets.
Buyers would not only have less income based upon the loss of primary and substantial deductions, they would be challenged to limit the amount they paid for a home. In addition, realtors expressed concerns of financing schemes such as a strategy to offer a first mortgage under the proposed $500,000 limit and then a second mortgage (at a higher rate) to make up the difference.
Jeff Barnett, a California realtor and vice chairman of the National Association of Realtors’ large-firm real-estate services committee, said California will be hit “very, very hard” if the tax bill passes. Even if corporate tax cuts help boost the economy, he doesn’t think that will be enough to compensate.“You’ve taken away so many incentives for housing, they can’t spend the money from any extra economic growth.” This is why California homeowners are in Washington’s tax overhaul crosshairs if the proposed tax bill became law today.
Allen Barron provides sound advice and guidance on tax planning, federal and state income business and personal tax preparation as well as IRS audit and California audit representation. Our integrated tax, estate planning, legal, business and accounting services help you to minimize taxation, protect your business and assets and make well-informed decisions in the challenging months and years ahead. We invite you to contact us for a free consultation at 866-631-3470.