Solano Real Estate Scene: Tax reform will hurt homeownership

The key to a strong real estate market in an area like Solano County is having a strong middle class and a growing upper middle class. If the mortgage interest tax deduction is taken away along with the ability to deduct state income tax, it sure looks to me that this will hurt the upper middle class. Doubling the standard deduction will help folks who don’t own homes and will help taxpayers who have incomes below the median income, but for couples that make a combined income of $100,000 and above, it sure feels like a tax increase to me. Homeownership in California is at a 50- or 60-year low and taking away the mortgage interest deduction will potentially reduce the motivation for people to purchase a home. For a homeowner who buys a house for $450,000 with 5 percent down, the mortgage interest deduction automatically allows the buyer to itemize deductions because assuming the interest rate is 4.5 percent, the interest paid the first year will be nearly $19,000, which is much higher than the current standard deduction, which is $12,600 for a married couple and $6,300 for a single person. The other thing that is critical is that the property taxes of $5,000 are also deductible along with charitable contributions, unreimbursed employee expenses and – the big one – state income tax, potentially making the total of the itemized deductions as much as $40,000 to even $50,000, which is huge for a couple of school teachers who are buying a house in Fairfield.