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 11:13 AM
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

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