That depends largely on where you live, according to new data from the Brookings Institution. The House tax-reform bill would reduce the cap on the mortgage deduction – currently set at $1 million – at $500,000. On a national level, that change would affect a relatively small share of homeowners, according to the Brookings Institution; the average home value nationally is $205,000, and it’s estimated that only 3% to 6% of mortgages are above $500,000. However, the impact in some metropolitan areas is likely to be more severe.
“The greatest potential impacts would be on metros in coastal California and Hawaii, where more than half the homes are valued above $625,000,” Jenny Schuetz of the institute’s Metropolitan Policy Program wrote in a recent report. In metro San Francisco, for instance, at least half of houses could be affected by halving the deduction.
Other large cities would also see significant effects.
“In New York City, Washington, D.C., and Boulder, Colo., more than one-quarter of houses would be affected,” Schuetz wrote.
The impact of a mortgage interest deduction cut outside large metropolitan areas, however, “would likely be quite small,” Schuetz wrote.
Schuetz maintained that, should the House plan pass, the scale of the impact would depend largely on “policy details and speed of implementation.”
“Housing economists have long argued that the mortgage interest deduction primarily benefits higher-income households, and is not well targeted to first-time homebuyers,” Schuetz wrote. “However, most proposed revisions recommend implementing any changes to the MID gradually to avoid causing sudden drops in housing values.”
Industry slams federal tax reforms as damaging for homeowners
Mortgage tax proposal peeves professionals
Many housing industry groups have decried the new House tax bill for its proposed changes to the mortgage interest deduction. But how much effect would those changes actually have?