About

Looking to sell your San Diego home? Get a free home value reportLooking to buy a San Diego home? Click here for full MLS accessToday I want to talk about the proposed tax reform that’s currently on the table. Specifically, I’d like to talk about three aspects of it that could affect the housing market.1. They may be capping the mortgage interest rate deductions. Currently, you’re able to write off all of your mortgage interest on a loan up to $1 million. They are thinking of reducing this cap to $500,000. Let’s say you’ve got a 4% interest rate on a $1 million mortgage. Right now, you would be able to write off $40,000. If this tax reform goes through, you would only be able to write off $20,000. They are also looking into entirely eliminating the mortgage interest rate on second homes and home equity lines up to $100,000. 2. There is a proposal by the Senate to eliminate state, local, and property tax deductions. Here in San Diego where your property tax rate is about 1.2%, this could be a big blow to your write-offs. The House’s proposed plan would instead cap property tax deduction at $10,000. 3. They want to adjust the tax break for sellers. Currently, if you are an owner of a primary residence and have lived there for two of the last five years, you can write off up to $250,000 if you are single and up to $500,000 as a couple. These write-offs are currently tax-free. If this proposed tax reform goes through, you will need to have lived in your home for five out of the last eight years instead of two out of the last five. Instead of being able to move up every two years and taking your gains tax-free, you would need to stay in your home for at least five years. “On a long term scale, this proposed tax reform could decrease seller motivation. ”Overall, there is a lot of discussion about how these changes are really going to affect housing. In the short term we may not see a big impact, since interest rates and inventory are still both low. But as time goes on, this proposed tax reform will create less motivation for people to sell. Also, by basically tying people to their homes for longer periods of time, we’ll likely see some tightening inventory. If you have any other questions or would like more information, feel free to give me a call or send me an email. I look forward to hearing from you soon.