The recently enacted Tax Cuts and
Jobs Act (TCJA) is a sweeping tax package. Here's a look at some of the
important elements of the new law that have an impact on individuals. Unless otherwise
noted, the changes are effective for tax years beginning in 2018 through 2025.
·
Tax rates. The new law imposes a new tax rate structure with seven tax
brackets: 10%, 12%, 22%, 24%, 32%, 35%, and 37%. The top rate was reduced from
39.6% to 37% and applies to taxable income above $500,000 for single taxpayers
and $600,000 for married couples filing jointly. The rates applicable to net
capital gains and qualified dividends were not changed.
·
Standard deduction. The new law increases the standard deduction to $24,000 for joint
filers, $18,000 for heads of household, and $12,000 for singles and married
taxpayers filing separately. These figures will be indexed for inflation after
2018.
·
Exemptions. The new law suspends the deduction for personal exemptions. Thus,
starting in 2018, taxpayers can no longer claim personal or dependency
exemptions. The rules for withholding income tax on wages will be adjusted to
reflect this change.
·
Child and family tax credit. The new law increases the credit for qualifying children (i.e.,
children under 17) to $2,000 from $1,000, and increases to $1,400 the
refundable portion of the credit. It also introduces a new (nonrefundable) $500
credit for a taxpayer's dependents who are not qualifying children.
·
State and local taxes. The itemized deduction for state and local income and property
taxes is limited to a total of $10,000 starting in 2018.
·
Mortgage interest. Under the new law, mortgage interest on loans used to acquire a
principal residence and a second home is only deductible on debt up to $750,000
(down from $1 million), starting with loans taken out after December 31, 2017. For acquisition debt incurred on or before
December 15, 2017, the limitation is still $1 million. And there is no longer any deduction for
interest on home equity loans, regardless of when the debt was incurred.
·
Miscellaneous
itemized deductions. There is no longer a deduction
for miscellaneous itemized deductions which were formerly deductible to the
extent they exceeded 2 percent of adjusted gross income.
·
Medical expenses. Under the new law, for the 2017 and 2018 tax years,
medical expenses are deductible to the extent they exceed 7.5 percent of
adjusted gross income for all taxpayers. Previously, the AGI “floor” was 10%
for most taxpayers.
·
Health care
“individual mandate.” Starting in 2019, there is no
longer a penalty for individuals who fail to obtain minimum essential health
coverage.
·
Alternative
minimum tax (AMT) exemption. The
AMT has been retained for individuals by the new law but the exemption has been
increased to $109,400 for joint filers ($54,700 for married taxpayers filing
separately), and $70,300 for unmarried taxpayers. The exemption is phased out
for taxpayers with alternative minimum taxable income over $1 million for joint
filers and over $500,000 for all others.
As you
can see from this brief 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
your tax preparer at (219) 769-3616, or email them, with your questions.
