A tax plan introduced by House Republicans on Thursday could have a bigger impact on affluent San Diego County homebuyers than in the rest of the nation.
Why it matters: The plan would lower the annual mortgage interest deductions to newly issued loans totaling no more than $500,000, down from $1 million right now. Homes cost more in Southern California than much of the nation.
Impact locally: In September, the San Diego County median home price was $535,000. Typical buyers put 10 to 20 percent down, so most San Diegans would not have a loan affected by the new plan. However, luxury buyers with higher loans will see less of a tax benefit.
More details: There have been 17,862 homes out of 32,900 sold over $500,000 this year, said real estate tracker Reports on Housing.
Some examples: Matthew Shaver, a San Diego senior mortgage consultant at Finance of America, said he was processing 10 loans at the moment and all were under $470,000. He noted that the tax plan still would allow people with bigger loans to write off deductions up to $500,000.
"You still are going to get the bulk of the reduction," he said.
For example, take a San Diego couple who decides to buy a home for $750,000. They would probably take out a fixed-rate loan and put 20 percent down. With a $600,000 loan at current interest rates, they would lose out on a $4,250 annual mortgage rate deduction under the proposed tax plan.
What’s next: The plan would only apply to new loans — not your current loan — but could come sooner rather than later. Republicans said they would try to get the plan passed and sent to President
What's it mean for San Diego home prices: While a reduction in tax benefits to homeownership might, on the surface, seem like a reason prices would move lower that might not be the case here, said Steve Thomas of Reports on Housing. He said low housing inventory should continue to create high demand — and high prices — despite any reduction in tax advantage.
"(The tax plan) could strip a little bit of the demand,but we need to see a lot more of it stripped away, and supply to start to rise, before prices to go the other way," he said. "So, I don't think it will have an immediate impact. But, it could push things in that direction a little sooner."
Industry reaction: The real estate industry opposes the proposed plan because it might lower housing prices by reducing the benefits of ownership over renting.
"Eliminating or nullifying the tax incentives for homeownership puts home values and middle class homeowners at risk," said National Association of Realtors president William Brown in a statement, "and from a cursory examination this legislation appears to do just that."
Redfin chief economist Nela Richardson said the tax plan was a missed opportunity to make homeownership more affordable.
"While the new $500,000 cap on the mortgage interest deduction is intended to limit the benefit for the wealthiest homeowners," she wrote in an email, "it also limits the benefit for first-time buyers in expensive coastal markets where it's hard to find a starter home at that price."
The bigger picture: In addition to mortgage deductions, potential homeowners might want to look at all the tax plan changes proposed together. It would prevent people from deducting state and local income or sales taxes and cap property tax deductions at $10,000. But, it will also double the standard deduction from $6,350 to $12,000 for individuals and $12,700 to $24,000 for married couples.