Photo: Robert Clark
The Trump administration’s Tax Cuts and Jobs Act makes some significant changes to many long-standing tax benefits of owning a home.
These changes will negatively impact many homeowners in hot West Coast markets and in the Northeast the most, potentially costing New York homeowners thousands of dollars annually, according to a report released this week by the listing site Apartment List.
The most significant revisions to the tax code include reducing the cap on the mortgage interest deduction from $1 million to $750,000, capping deductions for state and local taxes (including property taxes) at $10,000, and standardized deductions have been doubled so fewer homeowners are now likely to itemize their filings.
Because of a higher standard deduction, some homeowners that lose the tax benefits of homeownership will actually see a reduction in their tax bill. The implication for the housing market is “a shifting of incentives away from homeownership.”
“Homeowners in 'red states' are more likely to see this overall lower tax bill compared to those in blue states because they are not losing as many other housing-related deductions,” Sydney Bennet, senior research associate at Apartment List, tells BuzzBuzzNews.
But changes in the new law are affecting “left-leaning” (or “blue”) states disproportionately. There are 15 states in which a median homeowner would see a loss in tax benefits of more than $100 per year. And, interestingly enough, these are all states that Hillary Clinton won in the 2016 election, notes Apartment List.
“These regional disparities are closely tied to median home values, with more expensive markets being hit harder. That said, local income and property taxes also play a role, with the biggest impacts seen in areas that have a combination of high home values and high local taxes,” says Apartment List in the digital release.
At the metro level, the top areas hit hardest by the new tax code include: San Francisco, CA, Los Angeles, CA, San Diego, CA, Boston, MA, Washington, DC, and of course New York City. Half of the 10 hardest hit metros are located in California.
In New York, owners of median-priced homes could lose $3,600 in home-related deductions in the first year under the new law, or $32,000 over the life of a 30-year mortgage.
By comparison, homeowners in San Jose, CA will be hit the hardest, losing $5,400 in housing related tax deductions in the first year of the tax code and $114,000 over the life of a mortgage.
And for some households in these metro areas, the changes to the tax code might just be the breaking point that sends some homeowners to look out of state for a more affordable place to call home — a trend, which according to Apartment List, may have already begun.
“While the final impact of the new tax code on the housing market remains to be seen, the changes represent a significant scaling back of one the primary ways in which the government promotes homeownership,” says Apartment List.
Click here to read the entire release.