How the New Tax Bill Affects Affluent Southern Californians (My Clients)


In late December, the House & Senate finalized a sweeping tax bill that will take effect in 2018.  President Trump, living up to his promise to pass the bill by Christmas, signed the bill on December 22. 

Here’s a link to the massive document if you’re so inclined:

Now I’m not going to discuss my opinion on the bill and whether it’s impact will ultimately be positive or negative on our economy (we can discuss that over a Starbucks if you want) but rather I’ll focus on the facts.  The specific changes in the tax code that will most likely affect us Southern Californians!



Marginal tax rates will be reduced which, for most, means paying less federal taxes.



“Under United States tax law, the standard deduction is a dollar amount that non-itemizers may subtract from their income before income tax is applied” according to Wikipedia. There’s some really good news in the new legislation for non-itemizers.  The standard deduction will increase from $6,500 to $13,000 for single filers and from $12,000 to $24,000 for married filing jointly filers.  On the surface this seems like good news and generally it is BUT…….

SALT (State and Local Taxes) DEDUCTION

Originally the plan was to eliminate the deduction for State and Local taxes altogether but a last minute compromise left that number at $10,000.  So what does this mean exactly?  For those Californians itemizing their deductions this could mean a big hit.

Here’s an example:

Let’s say a couple, Jerry and Jennifer, living in Irvine owns a $1 million house.  And their property tax plus Mello-Roos (Local Tax) is 1.5% or $15,000.  And let’s also assume that couple is earning $250,000 thus paying California state taxes in the amount of $18,097 which is what the CA Franchise Tax Board estimates they would pay.  In previous tax years the couple could have reduced their income by $33,097 ($15,000 in Local Tax + $$18,097 in CA State Tax) if they itemized.  With the new SALT plan they could only deduct $10,000 losing $23,097 of deductions.  And even though their standard deduction increased to $24,000 they would still end up with over $9,000 of deductions lost.


Obviously of HUGE concern to SoCal residents in that our homes are just so expensive.  When the home costs more the mortgage is bigger which means more interest to deduct.  The House originally wanted mortgage interest deductions capped at $500,000 and the Senate wanted the cap at $1,000,000.  They met in the middle and the current bill proposes the interest deduction to be capped at $750,000.  (IMPORTANT NOTE:  Under the current proposal this rule would only apply to new mortgages.  Current home owners will still be afforded the mortgage interest deduction up to $1,000,000.)


Currently, interest on home equity lines of credit of up to $100,000 is deductible.  Under the new bill that deduction is gone.


This is a tax meant to make sure high income earners with a lot of itmeimzed deduction still pay their fair share.  AMT will not go away, however the point where it kicks in will increase and it will apply to far fewer people.


The new tax bill eliminates this penalty that was part of the Affordable Care Act.


The Estate tax will remain however the exemption has doubled to $11.2 million for an individual and $22.4 million for married couples.


The new tax bill will save most Americans money in taxes.  The probable exception?  Higher income earners in high income tax states with high real estate values.  In other words, a LOT of Orange, Los Angeles, and San Diego county residents, i.e. a LOT of my clients!

Thanks for reading!

About The Author
Mike DePaul
After beginning his career working for the largest financial planning organization in the United States, Mike became a top producer as well as a top trainer of financial advisors. He soon realized that the big firms don’t always have their clients’ best interest in mind and simply couldn’t continue down that path. He helped found Newport Wealth Advisors with the belief that there are smarter, more efficient ways to reach your financial goals that don’t include peddling one company's products.
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