I already own a house in Nevada, 6 miles from my residence. I can easily claim Nevada residency without much hassle…
The point is rich people and even middle class retirees will be able to avoid California taxes if the burden gets too high… Time to reduce California taxes before the people that pay the vast majority of taxes leave… all my law enforcement retirement buddies already live in Nevada on California pensions
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The amended bill includes a technical change that immediately adopts a revised measure of inflation, known as “chained CPI”, which would change how inflation is calculated, thus slowing the speed at which tax brackets grow with inflation. As a result, Americans would more quickly find themselves in higher marginal tax brackets — jumping from a 12 percent top bracket to 25 percent, for example — as their incomes increase.
The chained measure would also slow the value growth of some inflation-adjusted tax benefits, such as the Earned Income Tax Credit.
Entire tax discussion was rumored so far until this came out clearly !
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Any family making more than $200K is currently in AMT which makes state and property taxes non-deductible.
Well, let’s start here. Let’s stick with our hypothetical $250K family of 4. And suppose that they will purchase a $1M property in 2018 that has a $750K mortgage on it, for which they start out paying $30K of interest annually. In addition, they are hoping to deduct their $12000 of annual property taxes. They take no deductions for medical, charity, or misc.
250,000
- 16,600 (personal exemptions)
- 30,000 (interest deduction)
- 12,000 (property tax deduction)
- 15,000 (state tax approx.)
$176,400 (taxable) → fed tax liability $36,400
Now AMT:
250,000
-30,000 (interest deduction)
-84,500 (joint filing AMT exemption)
$135,500 (amt taxable) → fed tax liability $37,940
So, yes, they are paying $1540 of additional AMT liability, but that amount only represents a loss of deduction value of $5500. Note that $5500 is well less than even the personal exemption amounts that are excluded by AMT, so really all of the deductions remain (on an apple to apple comparison since the house bill also gets rid of the personal exemptions).
Under the house plan:
250,000
-20,000 (remaining interest on $500k)
-10,000 (property tax deduction)
220,000 taxable → house tax plan liability of $43,300 or $5360 more tax after the house plan.
So, the house plan is really about $450/month out of pocket to said CA family. Oh well.
ps. I have no idea why my fonts super sized themselves up above.
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Thanks for the details, @dougz. That was my point that the impact for a typical bay area family is not a deal breaker. Also, since the interest portion of the mortgage starts going down as years go by, the difference in the tax becomes even less significant.
Bottom line: people buying for the long term will continue buying.
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That could be very significant though for people who run a very tight ship.
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Did you forget the standard deduction under the house plan or is it not applicable under your scenario?
Did you forget the standard deduction…?
$20K + $10K =$30k itemized deduction exceeds $24K standard deduction, so this family would itemize irregardless. The house change to the standard deduction would have no impact on this family.
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Thanks for crunching. I think @dougz example here is a pretty typical snapshot of a married tech couple in the bay area. Either single income 250k, or dual incomes totaling 250k with children w/ a house in the $1M neighborhood price point.
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There’s a new amendment to the bill…
Republicans are looking for other ways to squeeze more dollars out of the bill. On Friday, Mr. Brady released an amended version of the tax bill that will reduce the value of the income tax cuts for individuals by $90 billion over the course of a decade and slightly shrink the estimated cost of the legislation.
The amended bill includes a technical change that immediately adopts a revised measure of inflation, known as “chained CPI”, which would change how inflation is calculated, thus slowing the speed at which tax brackets grow with inflation.
As a result, Americans would more quickly find themselves in higher marginal tax brackets — jumping from a 12 percent top bracket to 25 percent, for example — as their incomes increase.
The chained measure would also slow the value growth of some inflation-adjusted tax benefits, such as the Earned Income Tax Credit.
What is not mentioned is that while tax reductions sound great. The deficit will grow another $1.5trillion
What is the effect on the typical tax payer. And will corporations actually hire and produce more…
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Over 10 years so $150B/yr. The pentagon has admitted they waste $125B/yr. Cut their budget the full $150B/yr and call it good.
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The WSJ today is full of conservative naysayers… I doubt if much of the house tax proposal passes…
I usually asked my accountant to file my tax return. Thus, my knowledge on tax is limited.
However, doesn’t AMT exemption phase out $0.25 of your exemption for every dollar your AMTI exceeds $160,900?
If my understanding is correct, then amt exemption should be $62,000 at this income level.
That makes this hypothetical family pay less tax after tax reform?
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No need to hire a tax accountant… turbotax is all you need! Besides, it’s a lot of fun doing it… 
My mom abandoned Turbotax a while ago because you can’t load it on multiple computers. So if you want access to your taxes after you upgrade, recommend HRBlock.
Really… well personally I haven’t run into such problems yet… 
There’s a web based turbo tax now. You don’t have to install it. They automatically store your backups in the cloud for you.
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Ok that explains it… the web based one is the only one I’ve known to use… can’t imagine doing anything different from that…
Wait… but I’ve been using turbotax since 2004! This feature can’t be that new…
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Ahhh, Great way to have your social security numbers and financial information stolen.
Oh wait, Equifax already blew that. Nevermind.
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