Individual Summary of Tax Cuts and Jobs Act
Happy New Year – Below is summary of some of the key Individual Provisions of the Tax Cuts and Jobs Act that went into effect January 1, 2018. Some of the provisions are made permanent, while others only apply to the next ten years.
Standard Deduction – The new tax law will increase the standard deduction to $12,000 for single filers and $24,000 for those married filing jointly. The increased standard deduction, and limits placed on other deductions, discussed below, means that most taxpayers will no longer benefit from itemizing their deduction.
Prior to tax law changes, the standard deduction was $6,350 for single filers & $12,700 for individuals married filing jointly.
State and Property Taxes – Taxpayers’ state income tax and property tax deduction will be limited to $10,000 per year, combined.
Prior years did not put a limit on the amount of state & property taxes available for deduction.
Mortgage Interest – The deduction for mortgage interest will be capped to the interest paid on $750,000 of acquisition debt; interest on home equity debt will be eliminated. Taxpayers with mortgages above $750,000 will still be allowed to deduct the interest on up to $1 million if the debt was incurred prior to December 15, 2017.
Previous tax periods allowed interest expense on mortgage debt up to $1 million and $100,000 of home equity debt.
Charity – Charitable deductions will remain largely unchanged – deductions to qualifying charities are allowable as long as the taxpayer can substantiate all deductions over $250.
Miscellaneous Itemized Deductions – Many miscellaneous itemized deductions will be eliminated. The deductions no longer allowed include tax preparation fees, investment advisory fees, unreimbursed employee expenses and casualty & theft losses.
Personal Exemptions – The personal exemption deduction will be eliminated.
Prior to the tax law, the taxpayer, spouse and each dependent qualified for a $4,050 deduction.
Child Tax Credit – To replace the personal exemption elimination, the child tax credit will increase to $2,000 per qualifying child. The credit is allowed for married taxpayers with income up to $400,000 & single filers with income up to $200,000. In addition, up to $1,400 of the credit will be refundable for taxpayers with little or no tax liability.
Previously, the credit was limited to $1,000 per child, with the income phase-outs starting at $110,000 & $75,000 for married and single filers, respectively; with smaller amounts eligible to be refunded.
Alternative Minimum Tax – The alternative minimum tax (AMT) is not repealed, but it has been revised to no longer affect as many taxpayers. Most taxpayers with taxable income under $1 million, married, and $500,000, single, will no longer be subject to the AMT.
HealthCare Provisions – The penalty for those who do not have health insurance has been repealed.
Education Plans – Up to $10,000 per year from a qualified 529 can be used on elementary and high school education. There is no cap on the amount that can be used for college expenses.
Prior tax law did not allow 529 plans to be used for elementary and high school expenses.
Tax Rates – The new tax law will maintain 7 tax brackets (10%, 12%, 22%, 24%, 32%, 35% & 37%). The top rate applies to taxable income for married individuals above $600,000 & $500,000 for single filers.
Prior to the tax law change, the 7 tax rates were 10%, 15%, 25%, 28%, 33%, 35% & 39.6%. The top rate applied to income above $470,000 for married taxpayers and $418,500 for single filers.
As you can see from this overview, the new law affects many areas of taxation. If you wish to discuss the impact of the law on your particular situation, please contact our office.