SAN JOSE (KPIX 5) — Bay Area home buyers would face a financial hit if tax reform proposal in Congress becomes law as Republican lawmakers look to cap the mortgage interest deduction at $500,000.
Under the existing law, people can claim a deduction on home loans of up to $1 million.
KPIX 5 asked real estate and tax professionals to run the numbers from the GOP tax proposal for home buyers in California. The results were ugly.
The big changes include capping mortgage interest deductions at $500,000 of the loan amount and capping property tax deductions at $10,000.
Jeff bell is a former President of the Silicon Valley Realtors Association.
Bell crunched the numbers for a typical million dollar home in the South Bay.
Under the new GOP tax plan, a home buyer would have to pay an extra $400 a month. That comes out to about $5000 a year, all out of pocket.
17 percent of people living in Santa Clara County can actually afford to buy a home, said Bell.
When asked if $5000 a year make to prospective home buyers, he replied, It certainly can when we’re looking at numbers as low as 17 percent affordability.
House republicans also want to eliminate deductions for medical expenses, moving expenses, and the personal exemption of $4,050 per family member.
San Jose State Professor Caroline Chen spent 13 years at the IRS as an attorney. She ran estimated figures for a family of four with a gross income of $300,000 for both the proposed GOP plan and the current tax code.
The personal exemption of $16,000 makes a big difference. Using the current tax laws which have various step increases, a typical upper middle class Silicon Valley family is paying $52,000 in federal taxes.
Compare that to the GOP plan with no personal exemptions and a flat tax rate of 35 percent and the tax bill jumps up to nearly $97,000.
What’s more, the GOP plan also eliminates another big deduction: state income tax payments.
It could potentially be quite painful because we have one of the highest state income tax rates in the entire country, said Chen.
Gustavo Gonzales, the incoming president of the Santa Clara County Association of Realtors said the new tax plan is political payback for a blue state like California.
“Look at the numbers! I mean, we are being punished because our housing is expensive,” said Gonzales. “That’s not fair to any Californian who’s having to buy an average home of $1.1 million. It doesn’t make any sense.”
If the plan passes, it would only affect new home sales moving forward. Existing mortgages would be grandfathered in, but realtors think the plan could have a chilling affect on home sales.
Realtor associations plan to reach out to members to put pressure on California’s Republican members of Congress to push for changes that will help the state.