Trump tax cut made it harder for Californians to afford homes. Will Congress change it?
When Congress moves ahead quickly to continue expiring Trump-era tax cuts next year, it’s likely to take a step to further make it harder to buy a home in California.
The 2017 tax cut law championed by then-President Donald Trump made changes in allowable mortgage interest deductions. Prior to its passage, it was easier to itemize and deduct mortgage interest up to $1 million.
Since the law passed, interest deductions on mortgages have been limited to $750,000 or less, and it’s been more difficult to itemize. Much of the 2017 tax law expires at the end of next year, but Republicans who will control Congress vow quick action early next year to extend it.
Because of the mortgage interest change, “a lot of people were impacted” in California, said Miklos Ringbauer, principal and founder of a MiklosCPA, a Southern California accounting firm.
About one-fourth of the homes sold in California in the first 10 months of this year had a mortgage loan amount of more than $750,000, according to data from the California Association of Realtors.
Some of those were all cash purchases, meaning that roughly 35% of homes purchased with a mortgage during that time had a loan amount more than $750,000.
Affording a home in California remains difficult for many. The association found that 16% of California households could afford to buy a median-priced home this summer. The median was $880,250.
Slumping home sales
It’s difficult to pinpoint precise reasons for slumping home sales. Interest rates have spiked in recent years, though they’re down slightly from their peak of a year ago. And because of the 2017 tax law, which nearly doubled the standard deduction, far fewer people itemize.
But the lower interest deduction “definitely had an impact on homeownership,” said Jordan Levine, California Associqtion of Realtors senior vice president and chief economist.
Real estate groups saw this coming. When the change was enacted seven years ago, the California Realtors predicted existing home sales would drop 2.9%.
“As the tax saving incentives of being a homeowner vanish, fewer buyers will be inclined to purchase a home,” the association said at the time.
What’s ahead
Trying to get the deduction raised could be tough, because national analysts tend to agree that it’s difficult to say how much, if at all, the 2017 change affected homeowners’ buying decisions.
The 2017 reduction in the cap limit “might free up a tiny number of homes that would’ve otherwise been more quickly purchased,” said Jacob Channel, senior economist at LendingTree, which follows mortgage interest trends.
“The $750,000 cap has been in place for a while now and it evidently hasn’t done much to reduce home prices or increase housing supply in the United States,” he said.
The big driver of home sales remains mortgage interest rates, and those, he said, “appear poised to stay relatively high in the uncertain economic environment that we’re entering.”
The problem for California is that most states don’t have its high housing prices, which could make it difficult to raise the deduction cap.
Maybe the best hope, said Rep. Ami Bera, D-Sacramento, is that “I would hope everything’s on the table and Republicans do a bipartisan deal “
Democrats aren’t optimistic about that. Unlike most legislation, it will take 51 votes, not the usual 60, to clear a Senate tax bill. Republicans will control 53 seats.
This story was originally published November 19, 2024 at 11:15 AM with the headline "Trump tax cut made it harder for Californians to afford homes. Will Congress change it?."
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