Oregon Mortgage Interest Deduction Reform Bill Would Still Provide $270 In Monthly STATE Subsidy for Home with $900K Sales Price.

A recent Fortune story HERE focused on the income necessary to afford a $1 Million home and concluded that income range of $195K to $210K to qualify.

I thought it would be useful see how HB 3010 , that would phase out OREGON mortgage interest deductions for homeowners with incomes above $200K, would play out for the purchaser of a $900K home. ($900K brings a 20% down mortgage within the Fannie/Freddie current conforming limit of $762,200).

(There is a work session scheduled for this bill on Tuesday March 21st).

I constructed an example that shows a buyer with $225,000 income purchasing a $900K home with 20% down and a $720K mortgage at a 6% interest rate. The subsidy value was calculated using a 9.9% marginal state income tax rate. 

For Oregon tax purposes that $225K buyer would 

• Lose 50% of the mortgage interest deduction
• Retain 50% of the mortgage interest deduction
• Retain 100% of their property tax deduction 

The NET impact would be 

1. The buyer would pay $2,126 more in state taxes, .9% of their annual income. 
2. The buyer would CONTINUE to receive $3,240 in annual state subsidy for their home, $270 a month. 
3. The buyer would continue to receive 100% of their FEDERAL deductions for mortgage interest and property tax. (Federal mortgage interest deductions do not phase out until mortgages exceed $750K).
4. IF the homebuyer of that $900K home had an income BELOW $200K, there would be NO STATE OR FEDERAL REDUCTION in mortgage interest and property tax deductions. (The "front ratio" [housing expense/income] for a $200K buyer using the same assumed inputs is still a feasible 32% vs 29% for the $225K buyer).

Courtesy, Oregon Housing Blog.