The new tax reform law, called the "Tax Cuts and Jobs Act", is the biggest federal tax law overhaul in 31 years, and it has both good and bad news for taxpayers. Below are highlights of some of the most significant changes affecting individual taxpayers. Except where noted, these changes are effective for tax years beginning after December 31, 2017.
1. Drops of individual income tax rates ranging from 0 to 4 percentage points (depending on the bracket) to 10%, 12%, 22%, 32%, 35%, and 37% - through 2025
2. Near doubling of the standard deduction to $24,000 (married couples filing jointly), $18,000 (heads of households), and $12,000 (singles and married couples filing separately) - through 2025
3. Elimination of personal exemptions – through 2025
4. Doubling of the child tax credit to $2,000 and other modifications intended to help more taxpayers benefit from the credit – through 2025
5. Elimination of the individual mandate under the Affordable Care Act requiring taxpayers not covered by a qualifying health plan to pay a penalty – effective for months beginning after December 31, 2018
6. Reduction of the adjusted gross income (AGI) threshold for the medical expense deduction to 7.5% for regular and AMT purposes – for 2017 and 2018
7. New $10,000 limit on deduction for state and local taxes (on combined basis for property and income taxes; $5,000 for separate filers) – through 2025
8. Reduction of the mortgage debt limit for the home mortgage interest deduction to $750,000 ($375,000 for separate filers), with certain exceptions – through 2025
9. Elimination of the deduction for interest on home equity debt – through 2025
10. Elimination of the personal casualty and theft loss deduction (with an exception for federally declared disasters) – through 2025
11. Elimination of miscellaneous itemized deductions subject to the 2% floor (such as certain investment expenses, professional fees, and unreimbursed employee business expenses) – through 2025
12. Elimination of the AGI-based reduction of certain itemized deductions – through 2025
13. Elimination of the moving expense deduction (with an exception for members of the military in certain circumstances) – through 2025
14. Expansion of tax-free Section 529 plan distributions to include those used to pay qualifying elementary and secondary school expenses, up to $10,000 per student per tax year
15. AMT exemption, the amount of tax, increase to $109,400 for joint filers, $70,300 for singles and heads of households, and $54,700 for separate filers – through 2025. Earnings thresholds increase to $500,000 for an individual and $1 million for a couple
16. Doubling of the gift and estate tax exemptions, to $10 million (expected to be $11.2 million for 2018 with inflation indexing) – through 2025
Contact Landmark Tax if you have any questions.
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