Proposed Tax Reform Could Hurt Southern California Home Values

A recent Chapman University study shows that tax reform proposed by the federal government will hurt housing prices in California, and changes in the allowable deductions would benefit ultra-wealthy homeowners and owners of affordable homes.

The U.S. House of Representatives passed legislation on Nov. 16 that would reform the tax code in the United States. The U.S. Senate has yet to pass its own tax reform legislation. However, an unintended consequence of the House version of tax reform would mean fewer problems for homeowners who own the highest-priced properties in California.

According to economists from Chapman University, a $685,000 median-priced property could lose up to $60,000 in savings from taxes under the current version of tax reform passed by the House. The economists stated that those losses would result in a price drop of nearly 8.7 percent based on today's California housing statistics. Here are some of the tax changes that economists used in their study:

Deductions in property taxes would be capped at $10,000 for every homeowner.
Eliminates the ability to deduct state and local taxes.
Eliminates the alternative minimum tax, which lawmakers created to restrict the value of deductions for wealthy Americans.

Declines in home prices would hit California's upper-middle class the hardest, according to economists. The area that would take the biggest hit in home value declines under the tax reform proposal is Villa Park, where Chapman economists say a 13 percent decline could occur as a result of tax reform.

Chapman economists also stated that many areas could see a 10 percent decline in home values as a result of the proposed tax reform. High-cost areas such as Laguna Beach, Dana Point, Los Alamitos and San Clemente would be hit the hardest.

Newport Coast, Rancho Santa Margarita, Santa Ana and La Habra would only see a 3 to 4 percent decrease in home values, according to Chapman economists.


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