Homebuyers in Santa Clara await ruling on mortgage interest rate deduction tax break
Potential homebuyers considering purchasing real estate in Santa Clara may want to wait and see what happens to the mortgage interest tax break. After waiting for the recession to dissipate, many buyers are further putting off the decision to buy until Congress and the Obama Administration determine if the popular deduction remains. The Mercury News reports that in high-cost places like the Bay Area, the tax break is a powerful motivator for homebuyers because it allows taxpayers to cut their taxable income by the amount of interest paid on their home loans.
According to real estate news and custom data provider DataQuick, the median price paid for a property in Santa Clara is $688,000. The average first fill year's interest costs a homebuyer about $19,096, which provides that person with $5,729 in tax savings.
The tax cut is seen as a necessary component to home buying for many middle class Bay Area residents looking to purchase one of the houses for sale in the area.
"It's incredibly significant to me," Satish Shenoy, who is shopping for a home in Silicon Valley for his young family, told the news source. "The mortgage deduction is one big reason to buy a house, versus renting."
Real estate experts are warning legislatures that cutting the tax deduction will have a drastic impact on the strength of the Santa Clara housing market. Congress may consider putting the deduction on the chopping block to provide more revenue and help avoid the upcoming threat of a fiscal cliff.
"It would have a very dramatic impact on the housing market" in these states, said Michael Gray, who operates a Silicon Valley accounting firm. "To do this when the housing market is already down, on its back and trying to get back up again - I just don't see it happening."
The Mercury News reports that the removal of the tax break could negatively impact the recovering real estate market and throw current homeowners under further financial strain.
"For some folks, that deduction makes the difference in their ability to maintain their status as homeowners," said real estate expert David Stark.
Potential homebuyers in Santa Clara may want to figure out the impact the potential removal of the tax break could have on their finances before signing the purchase agreement for a property.