With the recent signing of the tax reform bill, major changes to the U.S. tax code will affect both individuals and corporations starting in 2018. This was the first major tax change in over 30 years. Bear in mind that this new tax law does not affect your current tax return filing for 2017. These go into affect for next year’s (2018) tax return filing. What does it all mean? Here are some of the changes that went into effect:
2018 tax brackets
We still have 7 tax rates, but most have been lowered. They are: 10%, 12%, 22%, 24%, 32%, 35%, and 37%. Under the old rules, the tax rates were: 10%, 15%, 25%, 28%, 33%, 35%, and 39.6%
Standard Deduction and Personal Exemption
The standard deduction has roughly doubled for most filing statuses. For single taxpayers, the standard deduction has increased from $6,500 to $12,000 and for married filing joint taxpayers, the standard deduction has increased from $13,000 to $24,000. However, personal exemptions have been eliminated for 2018 and all subsequent years. Previously, you were allowed an exemption of $4,050 for each dependent. This could disproportionately affect larger families.
Child Tax Credit
For all qualified children under age 17, the child tax credit increases from $1,000 to $2,000. Plus, the phaseout threshold for the child tax credit has increased. For married filing joint taxpayers, the old phaseout was $110,000. It has now increased to $400,000. And for single taxpayers, the phaseout has increased from $75,000 to $200,000.
Mortgage Interest Deduction
Mortgage interest deduction can now only be taken on mortgage debt up to $750,000, which is decreased from $1 million. However, this new reduction only takes place on new mortgages taken after December 15, 2017. All preexisting mortgages are grandfathered.
Interest on home equity debt can no longer be deducted.
Medical Expense Deduction
The threshold for medical expense deductions has been reduced from 10% to 7.5%. Unlike most of the provisions in the new tax bill, this actually is retroactive to 2017 tax year.
SALT Deduction (state and local taxes)
The bill has reduced the overall amount of state and local taxes that can be deducted to $10,000. This includes property taxes, state and local taxes withheld from your paychecks, and sales tax.
The cap of $10,000 will have the greatest affect in high property tax states such as New Jersey.
Deductions that are now gone
Casualty and theft losses
Unreimbursed job expenses
Tax prep fees
How will these changes affect you? Contact me so we can discuss further.