Tax Reform and You
In the wake of the Tax Cuts and Jobs Act of 2017, individuals will notice a number of changes in federal tax rates, deductions and credits. Most will apply beginning in tax year 2018 and sunset after 2025. Here are a few highlights:
TAX RATES LOWER
The headline here is individual tax rates are lower, while brackets are expanded. The accompanying graphic shows the difference for married taxpayers filing jointly. Taxpayers filing as single, married filing separately or head of household will enjoy similar reductions.
WIN SOME, LOSE SOME
The standard deduction is also up considerably, but the personal exemption disappears. For example, taxpayers filing jointly will see the standard deduction rise from $12,700 in 2017 to $24,000 in 2018 when exemptions ($4,050 each in 2017) go away. The child tax credit doubles to $2,000, with qualifying income thresholds rising sharply to $400,000 for couples filing jointly and $200,000 for other tax filers. However, kiddie tax changes could raise taxes owed for some. Unearned income for children under age 18 will be taxed as trust and estate income, not as parents’ income as before.
YOUR ADDRESS MATTERS
Some taxpayers won’t be able to deduct all their real estate, sales and local income taxes. They are capped at $10,000. The mortgage interest rate deduction (on loans originated after December 15, 2017) applies only on the first $750,000 of a mortgage. The deduction applies to interest on mortgages up to $1 million taken before then. Home equity loan interest is not deductible starting in tax year 2018.
Deductions for tax preparation, alimony and moving expenses are among the miscellaneous itemized deductions that will disappear. However, you can deduct charitable contributions up to 60% of income (it is 50% in 2017). The medical expense deduction threshold is also lowered for 2017 and 2018.
ODDS & ENDS
And there’s much more, including:
- Repeal of the health insurance mandate (after 2018);
- 529 accounts may be used for tuition for elementary and secondary education;
- The Alternative Minimum Tax (AMT) has higher exemptions and phase-outs;
- The estate tax exemption doubles.
There are additional changes, so talk to your tax professional to learn more.
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