Proposal would not affect most Wisconsin homeowners
Wisconsin homeowners would feel less impact from proposed changes to property tax and mortgage interest deductions under a GOP tax reform plan than residents of coastal states, but not everyone here would be unaffected.
Local economists and real estate professionals said Thursday that because Wisconsin housing prices generally are lower than those in places such as California and the East Coast, proposals to cap the property tax deduction at $10,000 and limit the interest deduction to existing mortgages and home-purchase loans of $500,000 or less shouldn’t have big ramifications in the Badger State.
“It doesn’t appear as though it’s going to impact Wisconsin nearly to the extent that it would in some of these markets that have far higher
median prices, such as those on the East Coast and certainly the West Coast,” said David Clark, a Marquette University economics professor who tracks residential real estate in Wisconsin.
Economist Brian Jacobsen, who is chief portfolio strategist at Wells Fargo Funds Management in Menomonee Falls, said, “The typical Wisconsin home is cheaper than the typical home on either of the coasts, so the limit on the mortgage interest deduction might not matter to most people.”
Still, it would matter to some, particularly in places such as Ozaukee, Waukesha and Dane counties and the lakeshore suburbs of Milwaukee County, where more home prices skew toward the higher end.
Data from the Wisconsin Realtors Association shows that in September the median price of homes sold in the state was $175,000. But in Ozaukee County the median price was $295,500, while in Waukesha County it was $275,000 and Dane County had a $260,500 median price.
The Greater Milwaukee Association of Realtors put the average sale price for a house through September at $671,800 in River Hills, $457,900 in Whitefish Bay and $386,500 in Fox Point.
But even in a perceived wealthy county such as Ozaukee, only 5.2%, or 2,190, of the 41,937 property tax bills sent out in 2016 were for $10,000 or more, said Ozaukee County Treasurer Joshua Morrison.
In Milwaukee County, homeowners with properties valued at $333,333 or higher could “start to feel the pinch on the proposed $10,000 property tax deduction cap,” said Brian Wickert, president of Accunet Mortgage in Butler.
However, Wickert doesn’t see the changes to the property tax and mortgage interest deductions causing much fallout in the Milwaukee metro area overall. He said of all single-family homes, condos and duplexes sold from June through August — 7,783 closed sales in total — about 97% were at a price less than $500,000, which is the new proposed maximum amount of a purchase mortgage on which interest would be deductible.
“At that purchase price, you can’t finance 100% of the purchase price anyway, so in reality, the number of homeowners with mortgage balances over $500,000 is literally a sliver in our metro area,” Wickert said. “That’s a different story on the coasts, but not here.”
Indeed, the California Association of Realtors issued a statement Thursday, saying, in part, “From what we have seen so far, limiting the mortgage interest deduction to $500,000 will no doubt hurt home ownership in states with high housing costs, such as California.”
Homebuilders also were unhappy with what they’ve seen so far of the GOP plan, even though they’ve been lobbying Congress on tax reform.
“The bill eviscerates existing housing tax benefits by drastically reducing the number of homeowners who can take advantage of mortgage interest and property tax incentives,” Granger MacDonald, chairman of the National Association of Home Builders, said in a statement.
“I’m sure every special interest will come out to defend their interests,” said Wells Fargo’s Jacobsen. “That’s part of what makes tax reform hard. Taxes are hard, but tax reform is even harder. That’s probably why it only happens every few decades.”
Small number of big mortgages
Of the nearly 20 million mortgages originated nationally from 2012 to the end of 2014, just 5% were larger than $500,000, according to an analysis of Home Mortgage Disclosure Act data done by the National Low Income Housing Coalition, which advocates for affordable housing.
The organization supports limiting the mortgage interest deduction to the first $500,000 of a mortgage.
The 10 states with the greatest number of mortgages larger than $500,000, in order, are California, New York, Virginia, New Jersey, Texas, Massachusetts, Illinois, Maryland, Washington and Florida, according to the NLIHC analysis.
“These 10 states accounted for 81% of the national total. California, alone, accounted for 45.7% of the national total,” according to the analysis.
Of those states, Trump carried only Texas and Florida in the Electoral College, according to the Federal Election Commission.
The District of Columbia (27.3%), Hawaii (24.0%), and California (16.8%) had the highest percentages of mortgages that were larger than $500,000, according to the analysis.
By comparison, Wisconsin had only 3,646 mortgages that were $500,000 or more, or 0.8% of the mortgages in the state.
Taking action to change the tax code is better than leaving it as is, said Todd Berry, president of the nonpartisan Wisconsin Taxpayers Alliance in Madison.
“I understand a pitched ideological battle will be waged here, but I hope people realize there are also good reasons to try to clean up and simplify a pretty hard to justify tax system,” Berry said.
“They are going to be throwing ideological pitchforks at each other but there are good reasons to have this discussion,” he added.