The Republican tax proposal unveiled in late October and passed in December, included at least two changes to the income tax structure that could potentially have significant impacts on homeowners, and by extension the housing market.
Counties Most Impacted by Reduced Mortgage Interest Rate Deduction
The first proposed change involves the mortgage interest rate deduction, often touted by many in the industry as an icing-on-the-cake advantage of homeownership. The proposal calls for a reduction in the amount of mortgage interest that can be claimed as a deduction for federal income taxes. Now, homeowners can deduct interest paid on up to $1 million worth of home loans, but under the GOP proposal, homeowners would only be able to deduct interest paid on up to $500,000 worth of home loans.
The county-level heat map on the left shows the percentage of loan originations so far in 2017 where the loan amount was above $500,000 in each county, providing a ballpark estimate of what share of the housing market would be affected if this portion of the tax plan is enacted.
Among 2,294 counties included in this analysis, those with the highest share of loan originations above $500,000 were Teton County (Jackson Hole), Wyoming (49.2 percent); District of Columbia (35.1 percent); Falls Church City, Virginia (34.6 percent); Arlington County, Virginia (29.6 percent); and Nantucket County (Martha’s Vineyard), Massachusetts (29.2 percent). Among those same counties, those with the highest volume of loan originations above $500,000 so far in 2017 were Los Angeles County, California (28,523); Orange County, California (15,527); San Diego County, California (12,739); Santa Clara County, California (11,322); and King County (Brooklyn), New York (11,110).
Counties Most Impacted by Cap on Property Tax Deduction
The second proposed change in the GOP income tax plan that impacts homeowners is a new cap on how much homeowners can deduct for property taxes. Under the proposal, homeowners can only deduct up to $10,000 in property taxes from their federal income taxes.
The county-level heat map on top shows the share of single family homes and condos in each county where the most recent property tax bill available was more than $10,000. Among the 1,731 counties analyzed, those with the highest share of homes with property taxes above $10,000 were Westchester County, New York (73.4 percent); Luna County, New Mexico (68.7 percent); Rockland County, New York (60.0 percent); Mathews County, Virginia (54.4 percent); and New York County (Manhattan), New York (52.5 percent).
Among those same counties, those with the highest volume of homes with property taxes above $10,000 were Nassau County (Long Island), New York (176,946); Los Angeles County, California (165,078); Suffolk County (Long Island), New York (155,592); Bergen County, New Jersey (126,096); and Harris County (Houston), Texas (125,792).