As news spread that Republicans in Congress had reached a deal on their massive tax reform plan Wednesday, local realtors looked for details on how the mortgage interest deduction would be changing.
Homeowners can currently write off the interest on mortgages valued at up to $1 million, which makes it a popular deduction in pricy real estate markets like Southern California. In this new deal, GOP lawmakers are reportedly leaning toward scaling back the deduction, capping the mortgage threshold at $750,000, according to NPR.
"It changes the rules in the middle of the game," said Steve White, president of the California Association of Realtors.
About a third of Californians itemize their taxes, and tax experts say writing off mortgage interest can help many buyers afford a house in the first place. White said a new, lower limit could force some local buyers to reconsider.
"We're seeing many folks waiting to see what will happen before they make a decision on what's good for their family," White said.
Realtor Shannon Shue works on the Westside, catering to clients like tech workers looking for homes near Silicon Beach. She said people buying those homes, often priced at $1 million and up, often end up with mortgages above $750,000. One of her clients currently in escrow is now confronting the possibility of losing the full mortgage interest tax break they'd initially planned on receiving.
"They're going to continue to purchase this home, because they really do want to have a place here in Los Angeles to call home," Shue said. "However, they're really concerned in the long-run about what this could mean about their own tax benefits, or lack thereof."
Lynette Williams focuses on homes in and around Pasadena, and expects the GOP tax bill to change the math for many of her clients too.
"It will have a massive impact here in California," she said.
Average homes in the areas Williams covers are priced in the upper six figures. She said homeowners looking in that range count on the mortgage interest deduction to make a pricey purchase work for their budget.
"If they're not going to get the deduction, eventually that will result in buyers staying on the sidelines," Williams said.
GOP leaders haven't confirmed the final details of their bill yet. But they're aiming to pass the legislation next week.
