Talks have resurfaced during tax reform proposals in a variety of ways recently regarding one of the favorite taxpayer deductions out there. For the last 10 years, every budget discussion includes the flirtation of amending or removing altogether the mortgage interest deduction. Every time in those 10 years to present, the talks eventually fizzle and the deduction is left entirely alone. The Senate Majority Leader said not to fear that it’s not on the table. Others, however, say it’s very much on the chopping block because of how few homeowners actually even benefit from it. For San Francisco and Bay Area homeowners, however, there could be some impact on different fronts.
The deduction is currently capped at $500K mortgage debt for individuals and $1M for couples. Some sources are starting to say that many proposals discuss lowering it to $600K in mortgage debt. Given that the median value of a U.S. home just crossed the $200K market, according to Zillow, it shows that not many people would even make it to that cap if lowered. At present, the Joint Committee on Taxation reports that roughly 20% of all tax payers even benefit from the mortgage interest deduction, and more than have of those that do take advantage of it have incomes above $100K. These income earners get 80% of the actual benefit, in segment.
Capping this popular deduction at mortgage debt no higher than $600K would presumably affect only 4% of the borrowers, but 15% of the dollar volume since the deduction is skewed toward higher income taxpayers. In the Bay Area, the average home price is obviously much higher than national averages for markets outside of the surrounding area, so there is some conflict here with who would be/wouldn’t be affected. San Francisco and surrounding markets are one of, if not the- hottest markets in the country and have been for some time. There is also the psychological impact of knowing you can at least take some kind of deduction, if you choose to, when it comes to mortgage interest, and THAT is what the National Association of Realtors cites could be damaging to the market if implemented all the way. While there is no evidence that the deduction spurs or impacts home buying, it does ultimately make certain homes more affordable for some buyers. More to follow on this and Email Me for more details or to see how much mortgage you can qualify for.