The Tax Cuts and Jobs Act of 2017 is considered the most significant revisions to the Internal Revenue Code in more than 30 years. Many provisions included in the Act take effect January 1, 2018, and will affect virtually all U.S. taxpayers. The link to the detailed table below compares modifications that went into effect starting January 1, 2018 with previous tax law allowing you to easily determine elements having the most impact to you and your family.
The following are individual provisions from the Tax Cut and Jobs Act of 2017. Our overview includes provisions impacting individual tax credits and deductions.
Lower Individual Tax Rates
The legislation creates lower individual income tax brackets of 10%, 12%, 22%, 24%, 32%, 35%, and lowers the top rate from 39.6% to 37%, respectively. (The current rates would be restored in 2026, i.e., 10%, 15%, 25%, 28%, 33%, 35%, and 39.6%, respectively).
Modification of the Alternative Minimum Tax (AMT)
The legislation retains the AMT for individuals but increases the exemption amount and phaseout thresholds so fewer people will pay it. From 2018 through 2025, a higher AMT exemption will apply to income, beginning with $109,400 for joint filers and $70,300 for other taxpayers in 2018. The exemption will phase out at $1 million for joint filers and $500,000 for other taxpayers.
Increase in the Standard Deduction
The standard deduction increases significantly from $12,700 to $24,000 for joint filers, from $9,350 to $18,000 for heads of households, and from $6,350 to $12,000 for singles. Since you can claim the higher of the standard deduction or itemized deductions, you will want to closely compare the two methods as you may now benefit from a higher standard deduction given the many changes to itemized deductions.
Elimination of Personal Exemptions
In exchange for lower tax rates and increase in the standard deduction, personal exemptions no longer may be claimed beginning in 2018.
Child and Dependent Credits
From 2018 through 2025, the reform legislation increases the value of the child tax credit to $2,000 per child under 17 from $1,000. As much as $1,400 of the credit will be refundable , thus allowing recipients to benefit even if they don’t owe taxes.
$10,000 Cap on State and Local Tax Deduction
In a significant departure from prior law, the legislation will allow individuals to deduct no more than $10,000 of any combination of the following taxes – state and local income taxes, state and local property taxes, and sales taxes. This overall limitation may result in the enhanced standard deduction yielding a larger deduction against your adjusted gross income and thus a lower tax bill.
Limits on Mortgage Interest Deduction
The tax reform act reduces the amount of mortgage indebtedness on which taxpayers may deduct interest to $750,000 for mortgages incurred after December 15, 2017. (The $1 million limitation remains for older debt). Interest on your principal residence and a second home are deductible. Importantly, however, beginning in 2018, interest on home equity indebtedness no longer is deductible, regardless of when it was incurred.
Medical Expense Deduction
All individuals may deduct medical expenses for 2017 and 2018 if the expenses exceed 7.5% of adjusted gross income, regardless of age. However, the AGI threshold returns to 10% of adjusted gross income in 2019 for all taxpayers, regardless of age.
Elimination of Deduction for Unreimbursed Employee Business Expenses
The reform act eliminates the deduction for miscellaneous itemized deductions through 2025. Thus deductions (subject to the 2% floor of adjusted gross income) for costs related to the production or collection of income, such as appraisal fees, investment fees, and safety deposit box rent are now non-deductible, and, importantly, expenses related to employment, such as uniforms, professional society dues, computer used for work, and job-hunting expenses also are non-deductible. Employees who incur significant unreimbursed business expenses may want to ask their employer about adjusting their compensation or establish an accountable expense reimbursement plan that would allow the employer to reimburse the employee tax-free while also entitling them to a deduction against their business income.
The tax legislation repeals the above-the-line deduction for alimony paid for divorces or separations executed after December 31, 2018. After that date, alimony payments will not be included in the recipient’s income and the payments no longer will be deductible by the payer.