NAR conducted an analysis to identify which metro areas will be most affected by the new tax law provisions. For each metro area, the calculations included the share of homes with mortgages that are worth over $750,000 and share of owners who paid more than $10,000 for real estate taxes. The map shows how many homeowners will be impacted by the new tax law for 382 metro areas (the darker the color, the higher the impact is CLICK to see details).
In the Riverside-San Bernardino-Ontario Metro Areas 4% of homes are affected by the new tax law, while 30% of homes in the Los Angeles-Long Beach-Anaheim Metro Areas are affected.
Based on the new tax law, there is no change for capital gains on the sale of a home and deductibility of interest paid for a second home. However, the new law affects the deductibility of mortgage interest and real estate taxes:
– New mortgages are capped at $750,000 for purposes of home mortgage interest deduction, down from $1 million today.
– State and local tax deductions remain in place, but are capped at $10,000 for state and local sales, income and property taxes.
Based on the data, the new tax law will have a higher impact in metro areas that already deal with affordability issues such as San Jose and San Francisco. Homebuyers were able to deduct up to $33,260 from their taxable income as a result of the mortgage interest deduction.
However, under the new law, homebuyers are now able to deduct up to $24,945. On top of the mortgage interest provision, owners in these areas will be able to deduct up to $10,000 for real estate taxes. In San Jose, 25% of owners paid over $10,000 for real estate taxes in 2016. Although the real property tax in California is less than 1%, a typical home in San Jose area is worth almost 1.2 million. Thus, both provisions will affect owners in less affordable metro areas.
Furthermore, the provision of the property tax will affect owners in metro areas where property taxes are high, such as New York, NY, Bridgeport, CT and Trenton, NJ.
Lawrence Yun, NAR’s chief economist, predicts some price declines in 2018 in California, New Jersey, New York, and Connecticut from the new law—potentially by up to 5%.
However, for most parts of the country, 95% of home buyers and homeowners will not likely be impacted by the mortgage interest deduction limit of $750,000 or real estate property taxes capped at $10,000, Yun says. He predicts that nationwide, home prices are looking to be fairly neutral in 2018.