The Tax Cuts and Jobs Act
Key Items affecting Individual Taxpayers
Please note: The following summary of items is not intended to be a summary of all items contained in the Tax Cut & Jobs Act. These items are those that will likely affect the largest number of tax filers. If you have specific questions about additional items that you may have heard about with respect to this Act, please contact our office.
Unless otherwise stated below, these tax changes are effective January 1, 2018 and expire on December 31, 2025.
- Tax Rates: The seven new tax brackets are as follows: 10%, 12%, 22%, 24%, 32%, 35% and 37% beginning in 2018. Under current law, individual rates are: 10%, 15%, 25%, 28%, 33%, 35%, and 39.6%.
- Standard Deduction: The standard deduction has been increased for 2018. The standard deduction increases to $24,000 for married individuals filing a joint return (currently $12,700), $18,000 for head-of-household filers (currently $9,350), and $12,000 for all other individuals (currently $6,350).
- Personal Exemption: Personal exemptions, currently $4,050 per person, have been eliminated.
- Child Tax Credit: The Act increased the amount of the child tax credit (for each child under age 17) to $2,000 per qualifying child. The maximum refundable amount of the credit is $1,400. The Act also created a new nonrefundable $500 credit for qualifying dependents who are not qualifying children. The threshold at which the credit begins to phase out was increased to $400,000 for married taxpayers filing a joint return and $200,000 for other taxpayers.
- Education Tax Credit and Student Loan Interest: The education tax credits and deduction for student loan interest remain in effect; 529 College Savings Plans can now be used for K-12 rather than simply college expenses.
- Mortgage Interest and Home Equity Loans: The home mortgage interest deduction was modified to reduce the limit on acquisition indebtedness to $750,000 (from the prior-law limit of $1 million). For acquisition indebtedness incurred before December 15, 2017, the Act allows current homeowners to keep the current limitation of $1 million. The Act allows taxpayers to continue to include mortgage interest on second homes, but within those lower caps. No interest deduction will be allowed for interest on home equity loans.
- State and Local Taxes: Under the Act, individuals are allowed to deduct up to $10,000 ($5,000 for married taxpayers filing separately) in state and local income or property taxes.
- Medical Expenses: The Act reduced the threshold for deduction of medical expenses to 7.5% of adjusted gross income for 2017 and 2018.
- Casualty Losses: Under the Act, taxpayers can take a deduction for casualty losses only if the loss is attributable to a presidentially declared disaster.
- Charitable Contributions: The Act increased the income-based percentage limit for charitable contributions of cash to public charities to 60%. It also denies a charitable deduction for payments made for college athletic event seating rights.
- Miscellaneous Itemized Deductions: All miscellaneous itemized deductions subject to the 2% floor under current law are repealed through 2025 by the Act. These include unreimbursed employee business expenses, tax preparation fees, safe-deposit box rental and investment management fees to name a few.
- Alimony: For any divorce or separation agreement executed after Dec. 31, 2018, the Act provides that alimony and separate maintenance payments are not deductible by the payer spouse and are not includible in income by the payee spouse.
- Moving Expenses and Moving Expense Reimbursements: The moving expense deduction and exclusion from gross income and wages for qualified moving expense reimbursements is repealed through 2025, except for members of the armed forces on active duty who move pursuant to a military order and incident to a permanent change of station.
- Affordable Care Act Individual Mandate: The Act reduces to zero, the amount of the penalty imposed on taxpayers who do not obtain health insurance that provides at least minimum essential coverage, effective after 2018.