THE TAX CUT & JOBS ACT: Individual Changes

January 2, 2018 Posted by: Category: Blog No comments

NOTE: Almost all sunset provisions that expired 1/1/2017 are gone.

Many of the provisions in the law expire after 2025.  WHY?  Because Congress could not exceed a ceiling on the deficit.  By putting an expiration on these provisions they bypassed this law.  So look for more changes and more controversy 8 years from now.

For the sake of simplicity (if that is possible), I will discuss in this blog the changes to individuals. Much of the law’s positive changes help business, both small and large; I will be writing a separate blog on those business changes.

TAX BRACKETS

Tax brackets have been modified with lower rates at each level.

The highest tax bracket is now 37%,  down from 39.6%

STANDARD DEDUCTION – Expires after 2025

  • Single: $12,000
  • Married filing joint: $24,000
  • Head of Household: $18,000

Personal Exemption currently worth $4,050 is now gone.

What does this mean to you?  For example, a  married couple with one child is the same as under the old law.  With more children, the Standard deduction increase is not enough to make up for the lost exemption.  So, those filing the standard deduction only may find their taxes going up.

ITEMIZED DEDUCTIONS – Expires after 2025

If you itemize, what changes do you have to look forward to?

Medical expenses now must exceed 7.5% of Adjusted Gross income (AGI).

All taxes previously deductible are now limited to $10,000 per year:

  • State Income Taxes
  • Real Estate taxes
  • State Sales Taxes
  • State Excise taxes

NOTE:  you can now allocate income taxes attributed to pass-through income (sole prop, S Corp, partnership) as a separate deduction outside this limit.

MORTGAGE INTEREST 

Interest is limited to new debt up to $750,000 and only on debt for acquisition debt, meaning your purchase of the home as well as improvements.  Any mortgage not related to acquiring or fixing up the home is no longer deductible.

This new mortgage rule is for any mortgage incurred after December 15, 2017.

Home Equity loans are no longer deductible.

Mortgage interest on second homes is no longer deductible.

CHARITABLE CONTRIBUTIONS

The law now requires you to have an acknowledgment letter from the charity to take any deduction for contributions equal or exceeding $250.  No Exceptions.

CASUALTY LOSSES

A personal casualty loss is now limited to only losses declared by the president as a Federally Declared Disaster Area.  So losses you incur with insufficient insurance coverage is no longer deductible.

MISCELLANEOUS ITEMIZED DEDUCTIONS

All items that used to be subject to the 2% Adjusted Gross Income (AGI) limit at the bottom of the schedule are eliminated.  That includes the following:

  • Expenses related to trade or business of an employee
    (e.g. home office deduction, travel and entertainment for an employee are not reimbursed)
  • Tax preparation fees
  • Investment expenses

KIDDIE TAX

In the past, this tax used the parent’s tax tables.  Under the new law, the trust and estate tax tables are used.

NOTE:  those brackets accelerate faster than the parent’s and may cost even more taxes than under the previous law.

CHILD TAX CREDIT

Child Tax Credit has increased from  $1,000 to $2,000.

Refundable portion increased from $1,000 to $1,400.

The income phase-out has increased, allowing more families to qualify.

DEDUCTIONS LOST

  • Tuition and related expenses  (but not education credits)
  • Alimony payments are not deductible, BUT Alimony income is still taxable.
  • Moving expenses

 

NOTE:  there may be other changes affecting individuals that were discussed in various versions of the law that we are still researching to see if they made it to the final version.  We will keep you posted as we learn more.

 

About 

Paul Dion - Speaker, Author, and Tax Advisor - has been planning and preparing returns for business owners for over 25 years with a specialty in helping real estate agents and investors. His passion is to help business owners legally pay the least amount of tax using court-tested and IRS-approved tax strategies. In addition, he continues to advance service offerings to include income saving strategies designed to deliver higher profits to your business.

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