I thought it might be informative to use the Home Builder Association projected sales price and property taxes and do a projection of what revenue would be lost to the state and federal governments as a result of income tax deductions for property taxes and mortgage interest. (As Washington State does not have state income tax the state income tax impacts I calculated would NOT apply in Washington State portion of Portland Metro area).
My assumptions (more detail in the linked document below):
- LTV of 80%
- Loan rate of 6%, 30 year fixed
- Sales price and property taxes , same as provided by Home Builders Association
- Insurance assumption $100 per month
- Effective federal income tax of 15%, state 5% (both likely are low, resulting in understating revenue loss)
- Annual discount rate of 3%, annual property tax inflation rate of 1%.
- With the interest rate, mortgage and property tax amounts used, family qualifying income would be $95,788, using a "front qualifying ratio" of 29%.
My Projections are HERE: The Purchase of Avg. New Home By Family With a Minimum Income of $95,000+ Results in 30 Year Government Revenue loss/Subsidy Cost of $72,000+ or an Average of $401 Per Month.
- After discounting, total state and federal revenue loss is $72,195; Without discounting loss is much greater at $100,616.
- The discounted revenue loss works out to an average of $4,813 per year, $401 per month; recall that this housing subsidy is for a family with a projected minimal qualifying income of $95,788 per year.
I don't claim to be a tax expert or for that matter a whiz on financial calculations, and therefore encourage others to use the same or different assumptions that I used and to pass along any alternative projections of revenue lost from mortgage interest and property tax deductions.
Originally created and posted on the Oregon Housing Blog.
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