Senate tax plan takes more, gives some back to California homeowners

Senate Republicans detailed their plan to overhaul the federal tax code on Thursday. It diverges on certain points from the House bill released last week, helping California homeowners in one way while hurting them in another. Still, tax policy experts say Californians who own a home or are looking to buy one shouldn't expect relief under either plan.  

"They're actually both pretty bad to be honest," said USC law professor Michael Simkovic. "If you're in California or another high-income, high-tax state, neither bill is very good for you."

Both bills would get rid of the deduction for state and local income taxes, one of the major reasons why about one-third of Californians itemize their taxes. 

The Senate bill would do away with the property tax deduction, whereas the House bill would allow homeowners to continue deducting up to $10,000 in property taxes.

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Loyola Law School professor Katie Pratt said eliminating the deductions for state and local taxes completely would be felt most acutely in states like New York, New Jersey and California.

"Taxpayers in those states will be hard hit by the House bill, and will be hit even more by the Senate bill," she said.

Pratt says the Senate plan includes one piece of good news for some California homeowners: The mortgage interest deduction would stay the same, allowing them to keep writing off interest on mortgages worth up to $1 million. The House bill would lower that limit to $500,000 for new home buyers.  

USC law professor Edward McCaffery said the effects of these tax changes would reverberate through California's housing market. 

"If there's more money coming out of your pocket when you own a home, that's going to have an immediate effect on home prices," he said. 

McCaffery predicts prices would fall, but adds that many buyers would still find homes out of reach without the property tax break.  

"It will hurt both current home prices and home affordability," he said. 

The Senate is still hammering out the details of its tax bill. The differences over the state and local tax deduction could be a key point of contention among Republicans.

One California House Republican has already said he's a "no" on tax reform. Darrell Issa (R-Vista), whose district overlaps Orange and San Diego counties, said the the elimination of the state and local income tax deduction is one of his concerns.