A tax bill proposed by House Republicans last week could threaten Maine’s market for vacation properties and strip savings from homeowners who rely on home equity loans.
The tax bill would hit wealthier homeowners by halving a popular mortgage interest deduction for loans of $500,000 or less and for only one residence after Nov. 2, 2017. Currently, homeowners can deduct interest on mortgages of up to $1 million for two residences.
But the bill could affect Mainers across income levels by eliminating the interest deduction on home equity loans, which many residents use for renovations or to fund other expenses.
Combined, the two cuts may potentially lower the number of people buying second homes in the state, experts said.
“This is concerning to me,” said Greg Gosselin, owner of Gosselin Realty Group in York and president of the Maine Association of Realtors. “And, Maine is a vacation state. This will dissuade people from having an incentive to continue to invest in second homes in Maine.”
Few home loans in Maine top $500,000. In 2016, about 7 percent of mortgages taken out in the state exceeded that amount, according to the Mortgage Bankers Association, a real estate industry advocacy group based in Washington, D.C. Those loans made up 22 percent of the total loan dollars borrowed that year.
But a larger share of Maine homeowners, some 14 percent, had home equity loans, Census data show.
The newly introduced bill’s precise impact on Maine remains unclear. However, when it released the bill the GOP said it boosts family benefits, eliminates costly deductions that drive up taxes and simplifies tax filing.
The Senate plans to release its version of the tax bill on Thursday.
The effect of the mortgage interest deduction change on home sales isn’t clear yet. However, Gosselin expects that if the GOP plan passes as is, it will decrease the number of potential home buyers and also possibly lower home values over time as people opt to rent instead.
“We don’t want to go back again, as we’ve experienced that [drop in prices] in the past 10 years,” he said.
However, the most recent sales figures from the Maine Association of Realtors show robust Maine home prices that have risen steadily over the past five years. They were up more than 10 percent this September over the same month in 2016, and the number of homes sold was up more than 2 percent.
The median sales price in Penobscot County was $146,500, up close to 4 percent over September 2016, while in Cumberland County it was $295,000, up more than 7 percent.
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