Bay Area homeowners hit hardest in new federal tax law

Louis Hansen, The Mercury News on

Published in Business News

Bay Area residents already face some of the highest housing prices in the country.

And this year, some of the tax benefits of owning that valuable real estate will evaporate.

The new federal tax code is expected to strip the typical San Jose homeowner of $5,400 in deductions this year, the highest of any metro area in the country, according to a new report by Apartment List. The typical East Bay homeowner will lose $4,500 worth of deductions, roughly $110,000 over the course of a 30-year mortgage.

Economists expect the tax changes to drive up overall home ownership costs in California and decrease the inventory of homes for sale.

"We think it's going to undermine values," said Jordan Levine, senior economist with the California Association of Realtors. "It just makes all of our existing problems that much more serious."

The new tax law caps deductions for state and local taxes at $10,000 and reduces mortgage interest deductions on new loans from $1 million to $750,000, pinching residents in states like California with higher local taxes and housing costs. The new code also doubles the standard deduction, meaning fewer homeowners will itemize on their taxes.

Levine expects the impact to be similar to raising mortgage interest rates about three quarters of a percent. The association also expects the tax plan to encourage Bay Area buyers to stay put rather than sell, buy another, pricier house and potentially lose thousands of dollars of mortgage interest deductions.

The median sale price for a home in the nine county region in January was $712,000, an increase of nearly 12 percent from the previous year, according to real estate data company CoreLogic. The typical home sold for $1.1 million in Santa Clara County, $755,000 in Alameda County, and $1.3 million in San Mateo County.

Chris Salviati, economist at Apartment List and author of the study, said the new law may have already affected the prices for some purchases. Other impacts, such as a decreased inventory of homes for sale, may take longer to show up.

The loss of deductions could discourage some residents from buying, and make renting look more attractive, he said. It could also encourage more residents to leave the region for other growing, more affordable technology hubs like Seattle and Austin, Texas, Salviati said.


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