GOP Tax Overhaul: How Minnesota Homeowners Will Be Affected

WASHINGTON, DC — The Republican tax bill has been approved by both houses of Congress, which means that Minnesotans are going to find out who are the real winners and losers of the law. And according to a new study by real estate company Zillow, many potential homeowners are going to lose out due to a lowered cap on the mortgage interest deduction.

The people who are going to be hurt the most are those who depend on the State and Local Tax deduction (SALT), which is being reduced to $10,000. Current mortgages are not affected by the tax plan, but home buyers in many Minnesota counties will be affected by the plan, which Trump lauded in a televised ceremony Wednesday afternoon.

But there will be some in the Land of 10,000 Lakes who will see a tax decrease, at least for the next few years. The child deductible is doubling to $2,000, and the Standard Deduction is also doubling to $12,000 for singles and $24,000 for couples.

• If you want to see how the tax bill will affect you, try using this calculator from Market Watch.

For the future, changing the MID could have a chilling effect on Minnesota's housing economy. The MID allows homeowners to deduct the interest paid on their mortgages from their taxable income, which decreases their overall tax bill, instead of using the Standard Deduction. Under the current law, the MID is capped at $1 million. But under the GOP tax bill, that would drop to $750,000. The reduction would only apply to new mortgages, not existing ones.

The percent of homes under the bill where the mortgage interest in the first year of the loan would be high enough for a homeowner to take the MID instead of opting for the standard deduction (assuming also taking advantage of SALT deductions) changes drastically from previous law in several Minnesota counties:

• Anoka: currently 61.62 percent to 3.16 percent
• Blue Earth: currently 19.39 percent to 1.69 percent
• Carver: currently 82.82 percent to 20.41 percent
• Dakota: currently 71.36 percent to 6.07 percent
• Hennepin: currently 69.57 percent to 14.75 percent
• Olmsted: currently 42.72 percent to 4.32 percent
• Ramsey: currently 47.54 percent to 6.23 percent
• Rice: currently 38.09 percent to 2.52 percent
• Saint Louis: currently 13.75 percent to 1.32 percent
• Scott: currently 80.62 percent to 8.61 percent
• Sherburne: currently 61.11 percent to 1.12 percent
• Stearns: currently 22.15 percent to 1.14 percent
• Washington: currently 80.58 percent to 12.59 percent
• Wright: currently 51.58 percent to 2.49 percent

All of this could have a negative effect on real estate markets across the country, which are still recovering from the 2008 housing market crash. According to Moody's, the bill could reduce national home prices by as much as 5 percent.

"The Northeast Corridor, South Florida, big midwestern cities, and the West Coast will suffer the biggest price declines," Moody's writes. "Counties such as Westchester, NY, Cook IL and Delaware PA will experience double-digit price declines."

According to an analysis by Zillow, under current law roughly 44 percent of U.S. homes are worth enough for it to make sense for a homeowner to itemize their deductions and take advantage of the mortgage interest deduction. Under the new bill, the percentage of homes drops to 14.4 percent.

Zillow's analysis says that more homeowners are likely to choose to take the standard deduction, which is doubled under the proposed GOP bill.

States like New York, California, Hawaii, Massachusetts and the District of Columbia have the highest percentages of homes purchased with loans above $750,000 in 2017, according to ATTOM Data Solutions.
Counties with the highest shares of homes with property taxes above $10,000 are Westchester County, New York, Luna County, New Mexico, Rockland County, New York, Mathews County, Virginia and New York County (Manhattan). Counties with the highest volume of homes with property taxes above $10,000 were Nassau County, Long Island, Los Angeles County, California, Suffolk County, Long Island, Bergen County, New Jersey and Harris County, Texas, according to ATTOM Data.

Zillow estimates that in Washington D.C. for example, the percentage of homes valued high enough for an owner to get a better deal by taking the mortgage interest deduction — assuming they also take advantage of the SALT deduction — goes down from 98 to 64 percent.

Zillow's analysis is based on the estimate that homeowners are in their first year of paying back their loan — when interest payments are largest — and they have a 30-year, fixed-rate mortgage at a 4 percent interest rate. County property tax numbers were based on 2016 numbers from the National Association of Home Builders.

An analysis from The Tax Foundation in August says that reducing the cap would increase taxes primarily for high-income taxpayers.

See the full report from Zillow here.

Image via Shutterstock

By Feroze Dhanoa, Patch National Staff