The Tax Cuts and Jobs Act was signed into law last December, carrying with it numerous changes to the tax law. The new law will affect individuals differently, depending on their property holdings and their locations. The three main changes to consider in evaluating the new law’s effect on the housing market are:

• The mortgage interest deduction cap has been lowered to $750,000 from $1,000,000.
• The combination of state and local property, sales, and income tax deductions is capped at $10,000.
• The standard deduction is doubled.

Mortgage Interest Deduction
Key points:
• If your home was purchased after December 17, 2017, you will be able to deduct the interest on a mortgage of up to $750,000 on an itemized tax return.
• Homes purchased or refinanced prior to that date carry the ability to deduct the interest on a mortgage of up to $1,000,000.
• The interest deduction cap encompasses all residential real estate owned by an individual, not just the primary residence.
This change should have little direct effect on individuals here in the Eastern Sierra, where the current median price in the Bishop area is in the low $300,000 range. (A home price of over $900,000 would be necessary for a $750,000 mortgage.) That being said, the itemized deduction for mortgage interest would cover a second home in addition to the primary residence. This could impact individuals from higher-priced real estate markets purchasing a second home here in the Eastern Sierra, who might see their ability to deduct a majority of their mortgage interest drastically reduced.

State and Local Tax Deductions
Previously, all state and local taxes paid could be claimed as an itemized deduction. You could essentially deduct state and local property, income, and sales taxes. Under the new law, the limit is set to $10,000 in state and local taxes for both married and individual filers. While housing in the Eastern Sierra may not incur significant property tax bills, in areas of Southern California and the Bay Area with significantly higher-priced homes, $10,000 would come nowhere covering an individual’s property and sales taxes.

Standard Deduction
The standard deductionor the amount the IRS will allow you to deduct without itemizing each expense (e.g., mortgage interest, state and local taxes)has been increased to $12,000 for an individual and $24,000 for a married couple filling jointly. For many individuals in our area, this increase will cancel out the need to itemize their return.
A study performed by the real estate website estimated that for a new buyer putting down 20% on a new purchase, only 14% of homes in the U.S. were estimated to be valued high enough and bring an adequate tax bill to benefit from itemizing. Under the previous tax plan, 44% of homeowners in the U.S. would have benefited from itemizing based on their mortgage interest and taxes incurred.

While the new tax bill may not affect most homeowners in the Eastern Sierra, it may affect those from out of the area looking to sell their current residence and relocate, or those seeking a second home here.