The new limit on deductible mortgage debt is $750,000, down from the previous $1 million. There are certain situations which may allow a home purchase to qualify for the $1 million, even if the home closes after Jan. 1, 2018. Talk to a tax professional to learn more.• Interest paid on home equity loans is only deductible if the proceeds are used to substantially improve the residence.• Interest remains deductible on second homes, but is subject to the $1 million/ $750,000 limits.• Homeowners who itemize their tax returns can claim up to $10,000 total for state and local property taxes and income or sales taxes. This $10,000 limit applies for both single and married filers and is not indexed for inflation. Here’s what first-time buyers need to know about the Tax Cuts and Jobs Act that was signed into law December 2017. MORTGAGE INTEREST DEDUCTION• Homes priced $500,000 and below will only be slightly impacted.• C.A.R. estimates that 60 percent of first-time buyers will purchase a property priced below $500,000, and 80 percent will purchase a home priced below $750,000, so most first-time buyers will not feel the effect that tax reform exerts on home prices.• The supply of available homes for sale also will be slightly impacted, as homeowners delay trading up/down to their next home. Overall, the California housing market is expected to see a decline of 0.3 percent in active listings in 2018 due to tax reform. HOUSING MARKET IMPACT DEDUCTION FOR STATE AND LOCAL TAXES (SALT)• Only members of the Armed Forces may deduct moving expenses. MOVING EXPENSES

FIRST-TIME BUYER EXAMPLE

To illustrate how the changes to the standard deduction, repeal of personal exemptions, mortgageinterest and state and local taxes might affect a first-time homebuyer, consider the example ofBarbara Buyer. Barbara, an accountant making $91,580 per year, is single and currently rents anapartment. She also pays state income tax of $5,086 and makes charitable contributions of$2,088, but the total of these is lower than the standard deduction, so she claims thestandard deduction.Tax Difference Under New Law. Even though Barbara would not get the benefit of the personalexemption under the new law, her higher standard deduction would more than make up for theloss. In addition, the lower tax rates of the new law would help deliver the total tax cut of $2,632($15,619 - $12,988) as compared with the prior law.However, let’s take a look at what happens to Barbara if she were to purchase a condo costing$440,000 (median price for a condo in California). She takes out a 30-year fixed rate mortgageat 4.5% interest, putting down 20%. Assuming she buys early in 2018, her first-year mortgageinterest would total $15,372 and she would pay real property taxes of $5,500.Barbara’s tax liability for 2018 under the prior law is as follows:Salary income $91,580Standard deduction ($ 6,500)Personal exemption ($ 4,150)Taxable income $79,862Tax $ 15,619Under the new law, Barbara would get a tax cut, computed as follows:Salary income $91,580Standard deduction ($12,000)Personal exemption ($ - 0 -)Taxable income $77,492Tax $ 12,988FIRST-TIME BUYER EXAMPLEAs a first-time homeowner, her tax liability under the prior law would be computedas follows:Salary income $91,580Mortgage interest $ 15,372Real property tax (1.25%) $ 5,500State income tax $ 3,738Charitable contributions $ 2,088Total itemized deductions ($26,699)Personal exemption ($ 4,150)Taxable income $60,731Tax $ 10,837Note: Under the prior law, Barbara would lower her tax liability for 2018 by $4,783 ($15,619 -$10,837) by purchasing the condo. This is the financial effect of the prior law’s tax benefits ofbuying a home. This amount effectively lowers her monthly mortgage payment by $399per month.Tax Difference Under New Law. Even though Barbara would still be able to claim all of heritemized deductions under the new law, she would lose the benefit of her personal exemption.However, her taxes would actually go down under the new law by $623 ($10,837 - $10,213)as the lower tax rate would more than make up for the loss.Now, let’s take a look at what her tax situation would be under the new law as afirst-time homebuyer:Salary income $91,580Mortgage interest $ 15,372Real property tax (1.25%) $ 5,500State income tax $ 3,738Charitable contributions (3.6% of income) $ 2,088Total itemized deductions ($26,699)Personal exemption ($ - 0 -)Taxable income $64,881Tax $10,213FIRST-TIME BUYER EXAMPLENote: This example pertains to federal taxes only.Disclaimer: This is not intended to provide legal or tax advice. Application of provisions toparticular tax situations need to be discussed with an accountant, CPA, or tax attorney.