GOP Tax Overhaul: How Local Housing Markets Will Be Affected

The U.S. House of Representatives passed the GOP's tax bill Tuesday before sending it off to the Senate, which will vote on the bill later in the day or on Wednesday. Multiple reports say the bill will impact the housing market and a report from Moody's estimates that provisions in the bill will reduce house prices.

The final version of the GOP tax bill caps the mortgage interest deduction at $750,000 and limits the state, local and property tax deduction to $10,000. Under current law, interest paid on up to $1 million in mortgage loans can be deducted. Current mortgages are not affected by the tax plan.

According to Moody's, the hit to national house prices is estimated to be as much as 5 percent and the impact is much greater for higher-priced homes, especially in parts of the country where incomes are higher.

"The Northeast Corridor, South Florida, big midwestern cities, and the West Coast will suffer the biggest price declines," Moody's writes. "Counties such as Westchester, NY, Cook IL and Delaware PA will experience double-digit price declines."

According to an analysis by Zillow, under current law roughly 44 percent of U.S. homes are worth enough for it to make sense for a homeowner to itemize their deductions and take advantage of the mortgage interest deduction. Under the new bill, the percentage of homes drops to 14.4 percent.

Zillow's analysis says that more homeowners are likely to choose to take the standard deduction, which is doubled under the proposed GOP bill.

States like New York, California, Hawaii, Massachusetts and the District of Columbia have the highest percentages of homes purchased with loans above $750,000 in 2017, according to ATTOM Data Solutions.

Counties with the highest shares of homes with property taxes above $10,000 are Westchester County, New York, Luna County, New Mexico, Rockland County, New York, Mathews County, Virginia and New York County (Manhattan). Counties with the highest volume of homes with property taxes above $10,000 were Nassau County, Long Island, Los Angeles County, California, Suffolk County, Long Island, Bergen County, New Jersey and Harris County, Texas, according to ATTOM Data.

Zillow estimates that in Washington D.C. for example, the percentage of homes valued high enough for an owner to get a better deal by taking the mortgage interest deduction — assuming they also take advantage of the SALT deduction — goes down from 98 to 64 percent. In Nassau County on Long Island, that percentage goes down from nearly 100 percent to 68 percent of homes and in Suffolk County, that percentage goes down to 36 percent.

Zillow's analysis is based on the estimate that homeowners are in their first year of paying back their loan — when interest payments are largest — and they have a 30-year, fixed-rate mortgage at a 4 percent interest rate. County property tax numbers were based on 2016 numbers from the National Association of Home Builders.

An analysis from The Tax Foundation in August says that reducing the cap would increase taxes primarily for high-income taxpayers.

See the full report from Zillow here.

Photo by Damian Dovarganes/Associated Press