New Tax Reform for 2018

Individual Tax Changes in New Tax Reform Legislation

Just before the holidays, Congress passed the "Tax Cuts and Jobs Act," a sweeping piece of tax reform legislation which was signed into law on December 22, 2017. This email provides a quick breakdown of some of the biggest changes upcoming for individual taxpayers for the year **2018**.

• Standard Deduction Increase. For tax years beginning after December 31, 2017 and before January 1, 2026, the standard deduction increases to $24,000 for married individuals filing a joint return, $18,000 for head-of-household filers, and $12,000 for all other taxpayers.  

• Personal Exemptions Eliminated. Personal Tax exemptions which previously were subtracted from a taxpayer's adjusted gross income to determine their taxable income are reduced to zero.

• Child Tax Credit Increased. The amount a taxpayer can claim as a per-qualifying-child tax credit doubles to $2,000 per child under the age of 17. Additionally, the phase out income levels increase to $400,000 for married taxpayers filing jointly ($200,000 for all other taxpayers.)

• State and Local Tax Deduction Limited. An itemized deduction for taxes paid state and local taxing authorities and real estate taxes are limited to $10,000. 

• Mortgage and Home Equity Indebtedness Interest Deduction Limited. The deduction for interest on home equity indebtedness is effectively gone and the deduction for mortgage interest decreases to the interest paid on a mortgage up to $750,000. 

• Medical Expense Deduction Threshold Temporarily Reduced. The threshold for the deduction which allows for expenses paid during the tax year for the medical care of the taxpayer, or their spouse, and/or their dependent(s) which are not reimbursed by insurance or an employer is temporarily reduced from 10% to 7.5%. 

• Miscellaneous Itemized Deductions Eliminated. Previously, taxpayers could deduct certain miscellaneous itemized deductions if they exceeded, in aggregate, 2% of the taxpayer's adjusted gross income. The new tax bill removes these deductions. 

• Overall Limitation on Itemized Deductions Suspended. Higher-income taxpayers who itemize their deductions previously were subject to a limitation on those deductions, reducing the allowable amount by 3% for adjusted gross income exceeding the threshold. This limitation on itemized deductions will now be eliminated and higher itemized deductions can be deducted. 

These are just some of the highlights of the new tax bill. If you have any questions regarding this new legislation and how it will affect you, give us a call at (610)863-8347 for a free consultation.