Personal income tax: mortgage interest deduction.
The removal of the mortgage interest deduction for secondary residences could increase tax burdens on individuals with multiple properties, particularly impacting wealthier residents or those investing in vacation homes or rental properties. The Franchise Tax Board is tasked with estimating the additional revenue generated from these modifications, emphasizing the potential fiscal impact on state revenue. The inclusion of this bill represents an effort to ensure that tax benefits more directly align with housing policy goals, possibly advocating for more affordable housing options within the state.
Assembly Bill 2616, introduced by Assembly Member Lee, seeks to amend the California Personal Income Tax Law to eliminate deductions for mortgage interest paid on acquisition indebtedness for residences other than the taxpayer's principal residence. This bill is set to take effect for taxable years beginning on or after January 1, 2025. Currently, California tax law allows for certain deductions in alignment with federal guidelines, which include the mortgage interest deduction for various residences. This proposal would shift the landscape of mortgage deductions significantly by limiting it strictly to the primary home of taxpayers.
There are notable concerns surrounding AB 2616, particularly from stakeholders in the real estate market who might view this alteration as a deterrent for investment in California's housing sector. Critics could argue that this decision to disallow mortgage interest deductions on secondary residences could discourage homeownership and investment in rental properties, ultimately leading to lower housing availability and increased market pressures. Legislative discussions may center on how this change aligns with broader economic strategies, particularly in light of California's ongoing housing crisis.