Tax Changes to Impact Coastal California Homeowners the Most, Another Study Says

  • Nine of the 10 American housing markets that will lose the most in deductions over the first year of the tax-reform package are located on the West and East Coasts.
  • Homeowners in the San Jose and San Francisco metropolitan areas stand to lose the most in deductions over the course of a 30-year mortgage — more than $100,000 in total.
  • Owners in five affluent Silicon Valley communities will lose more than $17,000 in tax deductions over the next year.

Worried couple examining papersThe tax-reform package that went into effect in December impacts expensive coastal California housing markets more than anywhere else in the U.S., which could have a negative effect on future homebuyer demand in the state.

A recent post at Apartment List’s Rentonomics blog examines the impact of the changes that the Tax Cuts and Jobs Act of 2017 has on U.S. state, metropolitan area, and local real estate markets. As Pacific Union Chief Economist Selma Hepp explained in a detailed analysis just before the legislation passed, the reforms are destined to hit homeowners and buyers in America’s expensive coastal areas the hardest.

In fact, homeowners in nine of the 10 housing markets that stand the most to lose from the recently passed tax package are on either the East or West Coasts (the other is Honolulu, Hawaii). Those include traditionally pricey markets in the Northeast such as New York City and Boston, along with highly populated California metropolitan areas, which accounted for the top five cities that will see the biggest deduction losses, both in the short and long term.

While Apartment List notes that homeowners in many areas of the inland U.S. may not see immediate negative tax impacts from the changes, the average California household who owns a home at the median state value stands to lose $3,200 in deductions in the first year, more than anywhere else in the U.S.

Homeowners in San Jose will bear the biggest brunt of the changes, losing $5,400 in deductions in the first year and $114,000 over the course of a 30-year mortgage on the median-valued $911,900 home. San Francisco ranks second for biggest tax-deduction losses, where owners will lose $4,500 in the first year and $109,000 over the life of a 30-year loan. Owners in Los Angeles will lose $4,000 in the first year, followed by those in Oxnard ($3,800) and San Diego ($3,600).

When sorted by individual communities, homeowners in ultrawealthy Silicon Valley and Southern California communities will take much larger hits, accounting for nine of the 10 U.S. areas with the biggest one-year losses. Those who own the median-valued home in Atherton, Hillsborough, Los Altos, Los Altos Hills, Montecito (in Santa Barbara County), and Woodside will lose $17,200 in deductions. Owners in Marin County‘s Tiburon — along with those in Beverly Hills and Malibu — will all lose about $16,000 on an annual basis.

While there currently appears to be no shortage of demand for homes in coastal areas of the country with high-octane job markets, Apartment List suggests that the tax changes, which also disincentivize prospective homebuyers, may prompt some residents to seek housing and jobs in more affordable areas of the country. Currently, California cities account for four of the top five U.S. real estate markets where households need to earn the highest incomes to afford a home.

(Photo:i Stock/AntonioGuillem)

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