Sam Liccardo joins California mayors to support tax break reform to tackle homelessness

Mayor Sam Liccardo is among nine mayors across California’s biggest cities to support proposed legislation that would reduce state tax breaks for homeowners, raising funding to tackle the state’s burgeoning homeless crisis.

Assembly Bill 1905, introduced by San Francisco Assemblymember David Chiu, would eliminate the mortgage interest deduction (MID) for taxpayers’ second homes. It would also cap the deductions for primary home loans acquired in 2018 or later for loans of up to $750,000, down from $1 million.

“The largest subsidy in the United States of America for housing is the mortgage interest deduction and it is overwhelmingly skewed to high-income owners,” Liccardo told San José Spotlight. “At a time when we’ve got 150,000 homeless people in the state, we critically need to redirect resources to help those who are most needy.”

The MID allows California homeowners to deduct interest paid on mortgages for both primary and secondary residences from their incomes. The tax incentive is only available for people who itemize their taxes — typically those who are wealthier rather than those who accept the standard deduction, according to Chiu’s office.

Liccardo said supporting this bill was a “no brainer” as it also conforms to changes made by President Donald Trump and Congressional Republicans in the Tax Cuts and Jobs Act of 2017.

The mayors from large California cities, including Mayor of San Francisco London Breed and Mayor of Oakland Libby Schaaf, wrote a letter to Chiu this month, calling the bill “bold housing legislation” that would direct money for the state’s Housing and Homelessness Response Fund. The bill would save the state between $400 to $500 million annually, according to the California Franchise Tax Board. Lawmakers are now discussing ways to allocate savings for programs to tackle the homeless crisis.

If the legislation passes, 224,000 Californians would pay around $750 more annually for their primary home mortgages over $750,000 acquired in 2018 or later; 175,000 homeowners would lose their tax break for second homes and owe around $1,000 more on their taxes every year, according to the California Franchise Tax Board.

“Once you get to the point where you have a second home, I think we can all agree the need (for a subsidy) is past and it’s important for us to focus scarce public dollars on helping us get homeless off the street,” Liccardo said.

San Jose Councilmember Pam Foley, however, warns that the bill would discourage homebuyers from purchasing second houses as rental properties, limiting housing options for people in San Jose.

Foley, who is a real estate broker, said that the bill would also reduce first-time homeownership in San Jose. In a city where the average home price is around $1 million, the average homebuyer’s mortgage would exceed the MID cap of $750,000, according to Foley. For a first-time homebuyer, she says the tax deduction may make or break a purchase.

“It’s going to affect the first-time homebuyer — the employee that’s cobbling together the down payment fund and working really hard, stretching themselves as far as they can to make their mortgage payment, knowing that by April 15 they will get a deduction that will benefit them,” Foley said.

The president of the Santa Clara County Association of Realtors Sandy Jamison also opposed the bill, noting that homebuyers in California’s mountainous regions — areas that are susceptible to wildfires — would bear the brunt of the burden.

As insurance companies have retreated from areas facing a high risk of wildfires, taxpayers are finding it harder to obtain mortgages and refinance their properties, though the state ordered a one-year halt on insurance companies from dropping customers in wildfire-prone areas. The bill would pose a “double whammy” for homeowners, said Jamison.

AB1905 will be heard in the Assembly Policy Committee this spring. This is Chiu’s second pass at eliminating a tax deduction for second homes. In 2016, he introduced the failed AB71 to fund a low-income housing tax credit program.

“I am grateful that mayors from across California clearly understand that it makes little sense for the state to subsidize the wealthy’s ability to own two homes while tens of thousands of Californians sleep on our streets every night,” Chiu said in a statement. “Together we can create the permanent source of funding needed to address this crisis.”

Contact Nicholas Chan at [email protected] or follow @nicholaschanhk on Twitter.