Posted on | March 18, 2013 |
Housing-related credits, deductions and exemptions cost California $7 billion to $8 billion in lost revenue, the Legislature?s nonpartisan fiscal analyst reported today during a joint legislative hearing examining the state?s investment in housing.
The Department of Finance estimates that the state has $50 billion in so-called tax expenditures. Of that, $33 billion reduces personal income tax revenues.
Of the several billion dollars in housing-related tax expenditures, the largest is the mortgage interest deduction, with a state revenue impact of about $4.6 billion. In 2010, 4.5 million (out of 15 million) California tax filers claimed $71 billion worth of mortgage interest deductions.
Critics, including the Legislative Analyst?s Office, say the mortgage interest deduction does little to increase homeownership. Instead, they say, it encourages people to buy more expensive houses and disproportionately benefits higher-income taxpayers who itemize their deductions.
Suggested changes would limit the deduction to first-time homebuyers and reduce the $1 million cap on the size of the home loan.
Another $1.5 billion in state revenue was lost in 2010 through deduction of property taxes. And $1 billion was lost because state law exempts from taxes the first $250,000 in capital gains ($500,000 for joint filers) on the sale of a homeowner?s primary residence.
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