How the new tax law affects retired homeowners will vary greatly depending on the state the homeowner lives. These are the basic rules retirees need to know before buying or selling.

Q: I am a regular reader of your column for many many years. I am a senior, widowed and have some retirement income and savings. I am concerned about the implications of the new tax law.

I plan to sell my house which I bought 34 years ago and buy another replacement home near where my son lives. I am concerned about the increase in property taxes I’ll have to pay. My current home has a lower property tax due to Proposition 13 in California. Also I’m wondering how the mortgage limit of $750,000 will affect me and whether it will mean I will have to put down a higher down payment. Home prices in Los Angeles where my son lives are quite high.

Since I can only deduct $10,000 (filing single) in itemized deductions what are my alternatives? My deductions are higher than that when you include my charitable donations. If I had a rental property, could I depreciate that property? How do I show the rental income and expenses?

I get very nervous facing these uncertainties.

A: Let’s start with your nerves – you’re not alone in feeling nervous and uncertain about buying, owning and investing in real estate given the recent tax law changes. While no one knows how this will all play out, at least you’re not alone in your worrying.

And, here’s some good news. The recent tax law made no changes to the home sale exclusion rules. That means that if you are single and selling your principal residence, you get to exclude from any federal income taxes the first $250,000 in profit on the sale. You get to exclude $500,000 in profits from the sale of your primary residence if you are married. That principal residence, however, must have been your principal residence for two out of the last five years.

So when it comes time to sell your home, you won’t have to pay federal taxes on the profits if they are less than $250,000.

In California, as in some other locations, laws are in place that limit increases on real estate taxes on a home. Your home’s real estate tax increases may have been limited in annual growth, by the amount you paid for your home or by any of various methods used around the country to control rising property taxes for homeowners that use their homes as their primary residence.

Due to the way different states receive tax revenues, some states rely on property taxes much more than others. In states that rely on property taxes, you can end up with two identical homes taxed very differently. If one home was purchased 30 years ago, the real estate taxes on that home may be a fraction of the real estate taxes on the identical adjacent home, and there is little you can do about this situation.

You appear to be the beneficiary of below market real estate taxes when you compare your real estate taxes with other homes in your area that have sold several times in the 34 years you have owned your home.

That’s great. But if you’re buying a more expensive property, you may be in for a much higher property tax bill. And, this is where the new tax law might well affect your finances. More on this in a moment.

When it comes to mortgages, under the new tax law, you’ll only be able to deduct interest on the first $750,000 of your new mortgage loan. Under the old law, you could deduct interest on up to a one million dollar loan plus a $100,000 equity loan. The new law reduced the amount of the primary loan and eliminated the deductibility of interest on the equity loan. (If a homeowner took out a loan before December 2017, that homeowner is grandfathered in under the old law.)

But you raised the newest and hottest issue relating to the deductibility of real estate taxes and state income taxes. You are limited to a maximum deduction of $10,000 for both of those items. So if your property taxes are $10,000, you’ll get that deduction but then nothing for any state income tax payments. Likewise if you pay $10,000 in state income taxes, you won’t get to deduct any of your real estate taxes.

What will that mean for you? Well, if you have $20,000 of state income tax and property tax payments, you’ll get to reduce your federal income taxes by $10,000 and not $20,000. Given that you are retired, if we assume that your federal income tax rate is 20 percent, you’ll end up paying $2,000 more in federal income taxes due to your inability to deduct $10,000. That means that you have to factor in a higher cost of living near your son as a result of your inability to fully deduct your real estate taxes and/or state income taxes.

You should know that charitable donations were not impacted by the tax law and if you own investment real estate, the rules there didn’t change either. If you own a rental property, you can run that rental property as you have always done by taking depreciation, offsetting income with expenses, including mortgage interest payments and real estate taxes.

We hope all this information helps you and if you have more questions, you might want to speak with a tax advisor, enrolled agent or accountant.