Controversial Home Mortage Deduction Cap Bill Withdrawn in Assembly

On Tuesday, the divisive Assembly Bill 1905, which would have limited mortgage interest deductions (MIDs) on primary and secondary homes to fund homeless programs, was withdrawn only hours before it was scheduled to be heard during the Assembly Housing and Community Development Committee.

AB 1905, written by Assemblyman David Chiu (D-San Francisco), would have created the Housing and Homelessness Response Fund by removing the MID tax break, which only 400,000 Californians currently take advantage of at an average of $1,000 a year for secondary and primary homes. The bill primarily targeted home owners with multiple homes whose MID tax breaks were over $1 million cumulatively. The Franchise Tax Board had estimated that the removal of the breaks, across all types of houses, could have brought in up to $230 million a year.

The bill had largely split lawmakers around the state before the coronavirus crisis, with mayors from the 13 largest cities finding it a point of contention during a meeting in early March. However, due to the economic effects of the statewide shutdown, California recorded a $54 billion budget deficit. Support for the bill quickly vanished as, because it raised taxes, it would have required two-thirds of both the Assembly and Senate.

“There’s not many people willing to vote on something like that right now,” explained “Dana,” who works in the State Capitol Building. “Even if it was to be used for homeless programs and only wealthier people would be effected, the downturn hurt so many people and people are struggling so much financially right now that it’s hard to justify any kind of tax increase. A tax increase may help the budget, but it hurts a lot of people in the process who are struggling to get back on their feet.”

Assemblyman Chiu himself withdrew the bill before the hearing. Chiu, an active supporter of homelessness initiatives both in San Francisco and California, had called the bills efforts against homelessness a “moral issue.”

“While thousands of Californians sleep on our streets every night, it makes little sense for the state to subsidize the wealthy’s ability to own two homes,” said Assemblyman Chiu about AB 1905 in January. “Eliminating this tax break to create a permanent source of funding to address our homelessness crisis is simply the moral thing to do.”

Assemblyman Chiu had also attempted to appease critics such as the California Association of Realtors last week by simply limiting the deduction for primary homes, following changes made by Congress and the Trump Administration in 2017. However, with a major tax raise still in place, it still proved to be unpopular among other lawmakers, housing and realty groups, and those who currently receive MID deductions.

While AB 1905 is now dead, other bills designed to help the homeless are scheduled for Appropriation Committee hearings in the near future.