Republican Tax Bill Creates Little Impact on Los Angeles Home Prices

By
Real Estate Agent CABRE#01303275

Don’t believe the scare headlines. The proposed change in the mortgage interest deduction from a cap of $1,000,000 to $500,000 for new loans will have almost no impact on prices of homes in the Los Angeles area. It is true that California will be impacted more than almost any other area in the US., but the impact will be modest, to say the least.

 

Under current tax law, the mortgage interest deduction is capped at $1,000,000 of loan outstanding. If you have a loan with a balance of $1,200,000, you are not able to deduct the interest on the $200,000. If the interest rate is 4%, you would effectively not be able to realize $8000 per year of deduction, due to the cap. This taxpayer is likely to be in the 33% tax bracket, so the actual cost per year would be $2667 per year.

 

Under the new rules, the cap would drop to $500,000.  In the worst case scenario, someone buying a home under the new tax plan that required a $1,000,000 loan would now lose the deduction on $500,000 of interest. Again, if we assume 4% interest, that would be $20,000 per year, and if the taxpayer was in the new 35% bracket, the actual out of pocket cost would be $7,000 per year or about $600 per month. So, in the very worst case scenario, the $600 per month difference would mean this individual might now only be able to afford a $1,100,000 home instead of a $1,250,000 home.

 

On the other hand, someone who can afford a $1M home may not be worried about the extra $600 a month. As you look at the less extreme examples, the affordability difference becomes almost inconsequential. A potential buyer who is looking at a $600,000 mortgage will lose about $70 a month in buying power.

 

It is likely that there will be some impact on homes between $700,000 and $1,300,000. However, the impact will be a one-time event.

 

If you would like to review the impact of the new tax bill on your plans with regards to buying or selling residential real estate in California, please call Whit Prouty today for a closer look at your exact situation. Call 310-777-6302

Comments (9)

Patricia Kennedy
RLAH Real Estate - Washington, DC
Home in the Capital

Whit, sadly, the mortage tax credit changes are only one small part of the current version of the tax bill - at least on the House side.  NAR prepared some talking points that you might want to read.  They are now working to get the Senate version of the bill more palitable. 

Nov 09, 2017 12:23 PM
Dave Halpern
Keller Williams Realty Louisville East (502) 664-7827 - Louisville, KY
Louisville Short Sale Expert

Whit Prouty thanks for your insightful post backed up by numbers and facts.

Nov 09, 2017 04:53 PM
Inna Ivchenko
Barcode Properties - Encino, CA
Realtor® • Green • GRI • HAFA • PSC Calabasas CA

Welcome to the Rain! 

Congratulations on your first post! 

Nov 09, 2017 10:41 PM
Gita Bantwal
RE/MAX Centre Realtors - Warwick, PA
REALTOR,ABR,CRS,SRES,GRI - Bucks County & Philadel

Welcome to active rain. Good luck in achieving your goals on active rain 

Nov 10, 2017 03:34 AM
Sybil Campbell
Fernandina Beach, FL
Referral Agent Amelia Island Florida

Welcome to Active Rain and congrats on your first blog post. Active Rain is a great place to meet, interact with and learn from awesome professionals. I hope the tax bills don't affect home ownership in a negative way. We all need to get involved.

Nov 10, 2017 05:16 AM
Kat Palmiotti
406-270-3667, kat@thehousekat.com, Broker, eXp Realty - Kalispell, MT
The House Kat

Welcome to ActiveRain! $600/month is a lot to buyers in my area, but our house prices rarely get to be $500K or more.  Best wishes with your blogging here.

Nov 10, 2017 06:08 AM
Mel Ahrens, MBA, Kelly Right Real Estate
Kelly Right Real Estate - Hood River, OR
Customized Choices for your Real Estate Needs

Welcome to Active Rain and congratulations on your first blog posting.  Sounds like you have a background in accounting/finance.  Even though I have such a background, I would refer them to their tax advisor as it is not a risk I want to take.

Nov 10, 2017 08:07 AM
Bob Crane
Woodland Management Service / Woodland Real Estate, EXP - Stevens Point, WI
Forestland Experts! 715-204-9671

Thanks for your perspective on this Whit, we will see what happens if this gift to the super rich passes.

Bob

 

Nov 25, 2017 11:16 PM
Bob Crane
Woodland Management Service / Woodland Real Estate, EXP - Stevens Point, WI
Forestland Experts! 715-204-9671

Welcome to Active Rain, looking forward to reading many more of your posts, let me know if there is anything that I can do to help as you get started here.
All the best of success to you.
Bob

Nov 25, 2017 11:16 PM

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