A New Year, a New (Tax) Resolution

Lady Bird is a film that will affect and move its audience members. The film centers around Christine "Lady Bird" McPherson, a young woman in her last year of high school, and chronicles the events during that year as she confronts her relationships with her family and friends, her romantic relationships, her connection to her hometown, and ultimately, her own identity.  The movie will unambiguously hit the nerves of those who identify with any of the characters or regard themselves as part of the middle class.  It unabashedly portrays the struggles that Lady Bird’s mother goes through in order to financially sustain the family that she so deeply loves. We learn early on that Lady Bird’s older brother, a graduate of UC Berkeley, was unable to find a full-time job and instead lives at home and works as a cashier at the local supermarket.  That same year, Lady Bird finds out from her mom that her quiet, good-natured father recently lost his job, which further heightened the depression that he has been secretly battling for years.

Although the film is set in Sacramento in 2002, the issues that the family must deal with and the film’s underlying message transcend that particular period in history and becomes relatable for many families today.  In one poignant scene, Lady Bird’s mom suggests they do their “favorite Sunday activity”: checking out open houses of their dream homes.  In another scene, Lady Bird describes her own house as from “the wrong side of the tracks.”  In yet another scene, she was forced to confess to a friend that the charming blue heritage house in an affluent neighborhood was not her real home but was, rather, her Dream Home.

On November 16, 2017, the U.S. House of Representatives passed a major tax reform bill, H.R. 1, the “Tax Cuts and Jobs Act,” to amend the Internal Revenue Code of 1986. The U.S. Senate, on December 2, 2017, approved its version of tax reform legislation.  The bill calls for the elimination or reduction of several tax deductions. For instance, it proposes to fully eliminate state and local income tax deduction, which is the single biggest itemized deduction for many taxpayers.  As a result, it would effectively render itemized deductions irrelevant for more than 90 percent of all households.  Furthermore, both the House and Senate plan to cap property tax deductions at $10,000.  In addition, the House proposes a cap on mortgage interest deductions by limiting new home loans to no more than $500,000, while the current cap is twice that amount, at $1 million.  The latest updates suggest that the House and Senate are likely to compromise on this point by capping the amount at $750,000.

There are speculations abound that once the dust settles, the proposed tax bill will ultimately result in a very small tax cut for low- and middle-income families.  For many families and prospective first-time homeowners, their plans may be an adjustment to their budget, or worse, an untimely and indeterminate delay in making the purchase.  As we near Christmas Day (the administration’s unofficial tax reform bill deadline), it is still difficult to definitively conclude how the tax bill will affect the middle class.  There will be discussions, negotiations, and debates between the House and Senate to come to terms with the final numbers.  What we do know, however, is that a major tax reform will be heading into 2018 with us.  If you have any questions about how the new law will affect you and your family’s ability to afford a home, be it your Dream House or not, you should consult a tax attorney to help you navigate the changes and properly plan for the upcoming years.