Californians’ home mortgage deduction would be capped under new bill

SACRAMENTO — California homeowners with big home loans and vacation properties would owe higher taxes under new legislation to raise money for programs to get the state’s homelessness crisis under control.

The bill by Assemblyman David Chiu, D-San Francisco, would cap a state tax break for mortgages to the interest paid on the first $750,000 of a loan for a primary home. It would eliminate the deduction altogether for mortgage interest on second homes.

Chiu’s office estimates the changes would bring in $400 million to $500 million per year, which would be set aside as dedicated funding for shelters, permanent supportive housing and other homelessness services.

“These are the individuals who own the most expensive homes in California,” Chiu said. “It’s a small price to pay among a small number of wealthier homeowners to establish a permanent fund for homelessness prevention.”

The California Association of Realtors and its local affiliates led the opposition, arguing that it would cost the state thousands of home sales each year. The organization declined to comment on Chiu’s new proposal until it had reviewed the bill language.

Conforming to the Trump tax overhaul would create an additional political complication. That law, which also capped state and local tax deductions on federal returns, was unpopular in California, and Democrats campaigned against it on their way to winning seven Republican-held House seats in the 2018 elections. When Newsom sought to adopt some of its provisions at the state level last year to expand a tax credit for the working poor, even some Democratic legislators supportive of the idea worried about the appearance of siding with a Trump policy.

Chiu said the mortgage interest deduction, which costs California more than $4 billion per year in tax revenue, is essentially the state’s biggest housing program. But if lawmakers today could choose how to spend those resources, he said, “we’d never decide to subsidize second vacation homes” over helping homeless people.

“Eliminating this tax break is simply the moral thing to do,” he said.



Alexei Koseff is a San Francisco Chronicle staff writer. Email: [email protected] Twitter: @akoseff

Alexei Koseff is a state Capitol reporter for The San Francisco Chronicle, covering Gov. Gavin Newsom and California government from Sacramento. He previously spent five years in the Capitol bureau of The Sacramento Bee, reporting on everything from international recruiting by the University of California to a ride service for state senators too drunk to drive. Alexei is a Bay Area native and attended Stanford University. He speaks fluent Spanish.