While the House and the Senate have passed their tax reform bills, they now have to figure out how to reconcile their differences. Once they conclude the final bill, both chambers will have to pass it again before it reaches the President’s desk to become law. In the meantime, we compared the impact that tax reform will have on homeowners across counties. Since all real estate is local, the impact of the tax reform on owners will vary from county to county. For each of the proposed changes in the current tax framework, we identified the three most affected counties.
-Most taxpayers claiming the mortgage interest, real estate tax, income tax, sales taxes and student loan deductions
If these deductions are eliminated, taxpayers will no longer be able to deduct the following amounts from their taxable incomes.
Mortgage interest deduction:
- In Loudoun County, VA, 46.5% of the taxpayers claimed the mortgage interest deduction. These owners were able to deduct $13,460 on average from their taxable income as a result of the deduction.
- Douglas County, CO: 46.1% of the taxpayers deducted $11,050 on average.
- Forsyth County, GA: 44.3% of the taxpayers deducted $9,360 on average.
Real estate tax deduction:
- In Hunterdon County, NJ, 52.5% of the taxpayers claimed the real estate tax deduction. These owners deducted $10,170 on average from their taxable income as a result of the deduction.
- Loudoun County, VA: 49.3% of the taxpayers deducted $5,770 on average.
- Douglas County, CO: 49.0% of the taxpayers deducted $3,340 on average.
Income tax deduction:
- In Loudoun County, VA, 53.1% of the taxpayers claimed the income tax deduction. These taxpayers deducted $9,570 on average from their taxable income as a result of the deduction.
- Howard County, MD: 52.7% of the taxpayers deducted $12,900 on average.
- Falls Church city, VA: 51.3% of the taxpayers deducted $12,610 on average.
Sales tax deduction:
- In Williamson County, TN, 33.2% of the taxpayers used the sales tax deduction. These taxpayers deducted $3,080 on average from their taxable income as a result of the deduction.
- Rockwall County, TX: 32.1% of the taxpayers deducted $2,240 on average.
- Kendall County, TX: 30.6% of the taxpayers deducted $2,510 on average.
Student loan deduction:
- In Lincoln County, SD, 17.9% of the taxpayers used the student loan deduction. These taxpayers deducted $1,150 on average from their taxable income as a result of the deduction.
- Cass County, ND: 17.5% of the taxpayers deducted $1,100 on average
- Clay County, SD: 16.5% of the taxpayers deducted $1,230 on average
–Most homes with a mortgage which are worth over $500K
San Mateo County, CA (94.3%) had the highest share of homes with a mortgage worth over $500K, followed by San Francisco County, CA (93.7%) and Marin County, CA (91.7%). Although the proposed cap on mortgage interest deduction will affect only new mortgages, owners especially in these states are expected to be more hesitant to move as a result of the cap.
–Most owners who will be affected by the change to the capital gains exemption
Four counties in Colorado – Garfield County, Moffat County, Rio Blanco and Routt, County – had the highest share of owners (24.8%) who have lived in their homes for 2-4 years followed by Pinal County, AZ (22.7%) and Cass County, ND (22.7%). Under both proposed tax frameworks, these homeowners will no longer be able to take the exemption, and they will need to pay for capital gains taxes until they live in their homes at least 5 out of the last 8 years.
The amount paid for capital gains taxes depends on the price appreciation of the house. For instance, owners in Cass County, ND are expected to pay $4,960 on average for capital gains taxes if they have lived less than 5 years in their home, while in San Francisco County, CA and McKenzie County, ND they will need to pay $17,470 and $16,500, respectively.
It is noteworthy that if the final plan limits the real estate tax deduction at $10K instead of eliminating the deduction, it will help homeowners in many counties across the country. In more than half of the counties, over 95% of the owners paid less than $10K for real property taxes in 2016.
Use the map to see how tax reform affects homeowners in each county:
Click for data (PDF)
Capital gains were calculated based on the price appreciation within the period 2011-2016. While the American Community Survey provides 2015 estimates for median home prices for all counties, we estimated the 2016 median home price using the HPI growth for the period 2015-2016.