Maria is single with no dependents and has an annual salary of $125,000. She is considering purchasing a house that costs $400,000. While she was looking for a house, the 2017 tax reform bill passed, changing deductions and tax brackets, and limiting the state and local tax exemption to $10,000.

In her state, income taxes are a flat 5% of all income (with no deductions or exemptions), and property taxes are 2% per year of the value of the house. Assume that if Maria decides to itemize her deductions, she has no deductions beyond her state and local taxes, and mortgage interest (if relevant). Finally, assume that if she decides to buy the house, she will pay $15,000 in mortgage interest in the first year.

a. Prior to tax reform, under 2017 tax rules, how much would Maria have saved in taxes in the first year by purchasing the house?

b. Under 2018 tax rules, how much would Maria save in taxes in the first year by purchasing the house?

c. If most people in Maria’s area have similar incomes and similar tax situations, do you expect house prices in her area will go up or down as a result of the 2018 tax reform bill?