AB71 is a bill proposed by the head of The Assembly Housing and Community Development Committee, David Chiu. The bill would eliminate mortgage interest deductions on second homes. The increased revenue would help provide more low income housing tax credits. While this is a good thing for low income housing, it does pose a problem in other areas.
It is estimated, that if the MID were eliminated on second homes, sales would drop by 2,152 homes in the first year. Because of this the state would lose an approximate $180.2 million in the first year. Many owners of second homes say they wouldn’t have bought a second home in the first place if they knew their interest deductions would disappear.
Keep in mind that not every second home is a vacation home. Someone with a one way commute of an hour or more may choose to purchase a small condo or townhouse to live in during the week. This could eliminate that option all together and force more traffic on the roads further slowing commute times.
The problem could be taken even further, people have made significant financial decisions based on the fact that the mortgage interest deduction would be there to make the property affordable. This could force the sale of second homes or other financial problems for the people who own them. In a vacation home areas of the state, homeowners are going to be hard pressed to find a buyer if the mortgage interest deduction on second homes is eliminated.