New Taxes on Real Estate

By Sarah Ward, REALTOR? 

After raising the gas tax and car registration fees over the past summer, California lawmakers are now turning their sights on a real estate tax, authored by Senator Toni Atkins of San Diego, to generate more revenue for our state government. The California Assembly passed Senate Bill 2, which adds a $75 tax on mortgage refinances and other similar transactions but exempts home purchases. This measure is expected to bring in $250 million in revenue to California where they hope to use some of the money to build or rehabilitate low-income housing across the state. Of course California has a significant shortage of low cost housing. This is especially difficult for teachers, police, fireman, restaurant workers and so forth, as this group needs to live somewhat near expensive populated areas but do not have the income levels to own a home. Because this is a tax, the bill will need at least a 2/3 majority in the Senate and final signing by Governor Brown, which is all expected. There was some struggle to pass the bill as some in Sacramento did not want to impede homeownership but in the end the measure was passed and moved to the Senate.

In Washington DC, there has been some talk of eliminating either the mortgage interest deduction and/or the property tax deduction on federal tax returns. This elimination would greatly hurt taxpayers in California where home prices, mortgages, and property taxes are relatively high, which in turn generate a much needed high federal tax deduction for many California filers. However, talk is cheap in Washington and elimination of these deductions would be difficult as there are extremely powerful housing lobbyists in DC, including the National Association of Realtors who are against this idea; however, the elimination of the property tax deduction is actively on the table currently. Also, the homeownership rate has dipped over the last 10 years and DC does not want an action that would further lower that rate. Homeownership has been proven to be beneficial to society for a host of reasons including family creation, the increased stability of homeowners, pride of living in a community, and wealth creation of a household.

There is also talk of eliminating the state tax deduction, where federal income tax filers deduct their state taxes when calculating their federal income tax liability. This idea, however, is gaining somewhat wide support and has a decent chance to become law. To understand this issue, look at two identical earners, one in a high income-tax state (such as California, New York, and New Jersey) and one in a low or no income-tax state such as Florida or Nevada. The filers in the high income-tax states end up paying less federal income tax on the exact same income due to this deduction than those in the low or no income-tax states. Some feel this is unfair as the effect is that the low or no income-tax states taxpayers are subsidizing those in the high income-tax states by paying more federal income taxes on the exact same income. So, in a nutshell, if Californians lose their ability to deduct their state taxes and property taxes on their federal tax return, it will yet again increase the costs of living in our beautiful sunshine state! These issues are expected to be determined in the coming months. Stay tuned.

As far as our local housing market, median home prices have dipped slightly in the last month. Typically the fall is a slower sales season as children head back to school and the holidays approach. So if you are an active buyer, it may be a good time to find an opportunity to purchase. Interest rates are still low but are expected to rise next year as jobs continue to be created and the economy heats up. Last quarters GDP came in at a higher than expected 3.1% which is an indication of growing economic activity.

If you are buying or selling property in San Diego, contact me for a no pressure, no obligation chat about your goals and opportunities.