A quick look at some of the biggest tax changes for Californians
Congressional Republicans are framing their tax cut bill as a Christmas gift that will give Americans an average tax cut of $2,059. For Californians, especially in the wealthier areas along the coast, the situation isn’t as clear cut.
When the measure comes up for a vote in the House on Tuesday morning, it’s expected to pass along party lines. At least two Republicans say they will join Democrats in the California delegation to oppose the plan because they fear it will hurt their constituents’ bottom line.
Here’s a quick look at what some of the biggest changes in the tax bill might mean for average Californians.
State and local tax deduction, standard deduction and new tax brackets
A third of California taxpayers take an average state and local tax deduction of $22,000. But the GOP bill will cap the deduction going forward to $10,000.
For many Californians who deduct their state and local taxes on their federal return, this would amount to a tax hike.
Supporters argue the doubled standard deduction and new tax brackets will offset the loss.
The whole bill is written to encourage people to take the standard deduction rather than itemizing, and the tax bill ups the standard deduction to $24,000 for couples, and $12,000 for individuals.
There will still be seven tax brackets, but Congress is tweaking how much you have to make to fall into each one. For a family that makes the state’s median income, which was $63,783 in 2016, that means a move from the 15% bracket to a new 12% bracket, at least until 2026.
A single person who makes $50,000 in taxable income is currently in the 25% tax bracket. Under the plan, that person will be in the 22% tax bracket.
A married couple that makes $100,000 in income is now in the 25% bracket and would move to the 22% bracket.
Of course, individual taxable incomes vary widely based on a number of factors, so head over here to try to calculate what you’ll be paying.
Expensive mortgages in California
Congress is changing how much mortgage interest you can deduct. This is a part of the bill expected to have the biggest effect on Californians, and a lot depends on where in the state you live.
The final bill would allow the deduction on new loans up to $750,000 — down from the current $1-million cap. Compared with the original $500,000 cap in the House proposal, dramatically fewer new mortgages exceed $750,000 in California.
If you live in the Central Valley or in rural areas where few homes cost $750,000 or more, you likely won’t notice a difference. For example, between January and October of this year, just 27 new mortgages in Rep. David Valadao’s Central Valley district were worth more than $750,000.
But if you live along the coast there’s a bigger chance you won’t be able to deduct all of the interest you pay on a new mortgage.
For example, in Rep. Ted Lieu’s coastal and central Los Angeles district, about half of new mortgages this year were worth more than $750,000. In Rep. Anna Eshoo’s Bay Area district, home buyers have only a slightly better chance of getting a mortgage for less than $750,000.
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