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The Real Deal Los Angeles

Proposed limits on mortgage interest deduction would hit Californians the hardest

Changes would increase federal revenue by billions of dollars, GOP lawmakers say

The GOP is planning on lowering limits on mortgage interest deduction (credit: Getty Images)

The GOP is considering to lower the limits on the mortgage interest deduction – potentially from $1 million to $500,000 – a move which would affect Californians more than homeowners in any other state, Los Angeles Times reported.

There are 489,000 people in the state that would have increased tax bills as a result of the deduction. The percentage of people it would affect — 2.4 percent — is the highest in the nation, according to an analysis by the Tax Policy Center.

The interest deduction might force developers to lower prices to incentivize residents to buy instead of rent. While the change has received opposition from the housing industry, most Americans are unlikely to be affected since they either have less than $500,000 in mortgages or do not have enough deductions to file an itemized tax return.

Many economists have been fighting the MID for decades. According to a 1996 study by Richard Green, Patric Hendershott and Dennis Capozza, U.S. home prices may be between 13 and 17 percent higher than they normally would be because of the MID — which many say disproportionately benefits wealthy homeowners with big mortgages while offering no support to poorer people who tend to rent.

The plan could generate billions of dollars of revenue for the federal government. [LAT] ­­– Naiwen Tian