a). Maria is single with no dependents and has an annual salary of $125,000. She is considering the purchase of a $400,000 house. While she was house-hunting, the 2017 tax act passed, changing the deductions and tax brackets and limiting the deduction for state and local taxes (SALT) to $10,000. Prior to 2018, the standard deduction for a single person was $6,350 and a person exemption of $4,050. A portion of the taxable income-brackets was:
| Over | But Not Over | Percentage |
| 0 | 9,325 | 10 |
| 9,325 | 37,950 | 15 |
| 37,950 | 91,900 | 25 |
| 91,900 | 195,450 | 28 |
In her state, state income taxes are a flat 5% of all her salary income (NO deductions or exemptions) and property taxes are 2% per year of the value of her house. Assume that IF Maria decides to itemize her deductions, that she has no deductions beyond her state income and local property taxes and her interest on her home loan (mortgage interest). Finally, assume that if she decides to buy the house, she will pay $15,000 in mortgage interest in the first year. Prior to tax reform, under 2017 tax rules, how much would Maria have saved (the difference between Maria’s taxes w and w/o the house) in taxes in the first year by purchasing the house?
B) Beginning in 2018, the standard deduction for a single person was $12,000 and no exemption. A portion of the taxable income-brackets was:
| Over | But Not Over | Percentage |
| 0 | 9,525 | 10 |
| 9,525 | 38,700 | 12 |
| 38,700 | 82,500 | 22 |
| 82,500 | 195,000 | 24 |
In her state, state income taxes are a flat 5% of all her salary income (NO deductions or exemptions) and property taxes are 2% per year of the value of her house. Assume that IF Maria decides to itemize her deductions, that she has no deductions beyond her state income and local property taxes and her interest on her home loan (mortgage interest). Finally, assume that if she decides to buy the house, she will pay $15,000 in mortgage interest in the first year. Under the 2018 new tax rules, how much would Maria have saved (the difference between Maria’s taxes w and w/o the house) in taxes in the first year by purchasing the house?
c) If most people in Maria’s neighborhood have similar incomes and similar tax situations and using your answers from the previous 2 questions, do you expect house prices in her neighborhood will go up or down as a result of the 2018 tax bill? Give a 1 sentence explanation
