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The Real Deal Los Angeles

How the new tax bill could negatively affect LA homebuyers

Lowering cap on mortgage and state tax deductions could temper price growth
December 20, 2017 11:13AM

Los Angeles Skyline and Mitch McConnell (Credit: Wikimedia Commons)

The changes to mortgage interest deductions in the $1.5 trillion tax reform bill passed by the Senate early Wednesday morning could hurt those buying in high-priced areas like Los Angeles.

The bill reduces the cap on mortgages that buyers can deduct interest from in their taxes from $1 million to $750,000 for homes bought after December 15, the Los Angeles Times reported. That means homebuyers with a 20 percent down payment could only deduct the interest from their mortgages if their overall purchase was below $937,500.

That, together with the $10,000 cap on property and state income tax proposed in the bill, could negatively impact prices in the luxury market. Additionally, the $1.5 trillion added to the deficit over the next decade could push mortgage interest rates higher.

A previous version of the bill that passed the House of Representatives would have reduced the cap from $1 million to $500,000. It was raised to $750,000 to assuage some California Republicans, with a significant percentage of mortgages above that half a million dollar cap.

More than half of all new mortgages in District 48 — which stretches from Huntington Beach to Laguna Niguel and is represented by Republican Dana Rohrabacher ― were above that cap, according to a Times analysis. Rohrabacher voted against the House version of the bill. 

The bill passed the Senate with a 51-48 vote along party lines early Wednesday morning and is headed to the desk of President Donald Trump. [LAT] — Dennis Lynch