New Santa Monica Homeowners Among Hardest Hit By Federal Tax Code

By Niki Cervantes
Staff Writer

March 12, 2018 -- New homeowners in Santa Monica are estimated to be among the hardest hit in California by a reduction in mortgage deductions in the new federal tax code, according to an organization tracking the ups and downs of the law.

In Santa Monica, homeowners subject to the Tax Cuts and Jobs Act of 2017, signed into law by President Trump in December, will lose between $4,300 for the least expensive homes to $16,200 for the costliest homes.

The analysis by Apartment List estimates the loss for homes of median value (about $1.7 million currently) in Santa Monica will be about $7,100 in home-related deductions.

The new tax code reduces the maximum deduction for mortgage debt from the previous $1 million to $750,000 -- a change that is hitting communities with high home prices, especially in California with its ever-escalating real estate costs.

Home loans taken out after December 15, 2017, are subject to the new rules.

Homeowners may itemize deductions of up to $10,000 for the total payment of state and local property taxes.

In the past, all state and local property taxes were deductible without limit in federal tax filings.

A state by state and community-by-community analysis is also detailed in the Apartment List study.

And among the biggest losers are localities such as Santa Monica, the study found, where buyers are already paying top dollar -- even in a region that is far more expensive than real estate is most of the nation.

Santa Monica had a lot of company in the losses columns, which include some of its seaside neighbors.

In Malibu, for instance, owners of median-priced homes were looking at $15,600 reductions in home-related deductions.

In Manhattan Beach, the deduction cut is tagged at $13,300 for a median-priced home; in Beverly Hills, the total is $16,300.

Newport Beach stands at about a $13,700 reduction in deductions for median-priced homes.

Montecito owners of median-priced home would see a loss of $17,200 in home-related deductions, the highest in California.

(The numbers are based on census data compiled before the devastating mudslides in Montecito in January).

The research calculated how much homeowners are likely to lose in housing tax deductions for every county in the Apartment List for homes valued at the 25th, 50th and 75th percentiles of their local markets.

Although costs of housing are rising and rippling through all of California, some with home values still low on a relative basis were sparred the tax code’s bad news on deductions.

Homes in Blythe, a sparsely populated city in Riverside County, weren’t expected to experience any change in the value of their deductions.

That was also the case with some 130 smaller, outlying communities.

But in metro markets in California and elsewhere in the country, a streak of escalating costs for homes translated into big mortgages -– and thus, bigger losses due to new tax code mortgage deductions.

In all, 15 states were expected to see reductions in homeowner tax benefits of more than $100 per year.

“The new legislation hits homeowners hardest in the expensive coastal markets across California and throughout the Northeast,” said Chris Salviati, a housing economist with Apartment List, said in releasing the report’s findings last week.

“The five most impacted metros are all located in California, and Bay Area homeowners could lose over $100,000 in housing-related tax benefits over the course of a 30-year mortgage,” he said.

“The impact of the changes is felt disproportionately in left-leaning parts of the country. Across all states where the median homeowner will lose housing tax deductions, Hillary Clinton won by a margin of 20 percent.”

Among the metro area’s most impacted by the tax code are the following:

* San Jose, with a median home value of $911,900, faces a deduction loss of $5,400, or $114,000 over a 30-year mortgage;

* San Francisco, with a median home price of $796,100, faces a loss this year of $4,500 and $109,000 over 30 years, and

* Los Angeles, with a median home price of $578,200, faces a loss of $4,500 this year, or $72,000 over a 30-year mortgage.

In the Oxnard area, where the median home value is $561,400, the deduction loss was estimated at $3,800, or a 30-year total loss of $72,000.

In San Diego, the loss due to the tax code for a median-price home was estimated at $3,600 and $48,000 over 30 years.

Rounding out the Top 10 most impacted housing markets were Honolulu, HI, with a loss of $3,200 (median home value: $658,900); Bridgeport, CT, with a loss of $1,700 (median home value: $423,200); and Boston, MA, with a $1,700 loss this year (median home value: $412,700).

Washington D.C., median home value of $411,400, faces a deduction loss of $1,500, while New York City, with a median home value of $426,300, faces a loss of $1,500.

The full report is at https://www.apartmentlist.com/rentonomics/trump-

The loss from the reduction in the mortgage deduction will be felt particularly in states like California, where being able to write off mortgage cost is a “crucial part of whether the ultimate cost of a home is within the reach of potential buyer,” he said.

The median home price nationwide is currently $254,000.

The lower limit, however, could make it harder for house hunters in expensive cities, the report’s authors noted.

For instance, in New York City, nearly 64 percent of mortgages on homes sold this year were more than $750,000, according to data from ATTOM Data Solutions, the report said.

In San Francisco, 58 percent of home loans exceeded the new cap.

The new cap also applies to mortgages on second homes.