The new laws contained in GOP tax reform bill, known as the Tax Cuts and Jobs Act of 2017, take effect for the 2018 tax year with the individual taxpayer changes set to expire in 2025 unless extended.
There are still 7 tax brackets for individuals, but the rate for some has gone down.
|Current Rates||New 2018 Rates|
|10% $0-$9,525||10% $0-$9,525|
|15% $9,525-$38,700||12% $9,525-$38,700|
|25% $38,700-$93,700||22% $38,700-$82,500|
|28% $93,700-$195,450||24% $82,500-$157,500|
|33% $195,450-$424,950||32% $157,500-$200,000|
|35% $424,950-$426,700||35% $200,000-$500,000|
|39.6% over $426,700||37% over $500,000|
|Married Joint Filers|
|Current Rates||New 2018 Rates|
|10% $0-$19,050||10% $0-$19,050|
|15% $19,050-$77,400||12% $19,050-$77,400|
|25% $77,400-$156,150||22% $77,400-$165,000|
|28% $156,150-$237,950||24% $165,000-$315,000|
|33% $237,950-$424,950||32% $315,000-$400,000|
|35% $424,950-$480,050||35% $400,000-$600,000|
|39.6% over $480,050||37% over $600,000|
The bill also makes a change to the way the tax brackets are adjusted for inflation. The new calculation creates a slower change than before, meaning credits and exemptions will be worth less over time.
The standard deduction has been nearly doubled, but the personal exemption has been eliminated.
For single filers, the standard deduction will increase from $6,350 to $12,000. For married couples filing jointly, it increases from $12,700 to $24,000. The result of this will be a large drop in the number of taxpayers who benefit from itemizing. The elimination of the personal exemption may negate any tax savings from doubling the standard deduction for couples with three or more dependents.
The list of Above the Line Deductions has changed.
The moving expense deduction has been eliminated for everyone except active duty military personnel. The deduction for those paying alimony is eliminated starting with tax year 2019, and those receiving alimony are no longer required to count it as income. The headline-grabbing graduate student tuition waiver will remain in place as will educator expenses and student loan interest deductions.
The State and Local Tax Deduction has been capped at $10,000.
This change will only affect those who will still itemize under the new plan, capping the previously unlimited deduction for state and local property and income or sales taxes.
The mortgage interest deduction has been reduced.
The amount of mortgage interest that is deductible has been lowered. The interest on mortgage debts of up to $750,000 is deductible, down from mortgage debts of $1 million. This change only applies to new mortgages created after December 31, 2017. The deduction of interest on home equity loans of up to $100,000 has been eliminated. (Update: The IRS released clarifying details on February 21, 2018)
Itemized deduction limits have been eliminated.
Previously, itemized deductions phased out if your adjusted gross income exceeded $313,800 for married couples filing jointly, $261,500 for single filers, and $287,650 for heads of household. These limits have been repealed beginning with the 2018 tax year through 2025.
All itemized deductions subject to the 2% floor have been eliminated.
Previously, taxpayers could deduct certain expenses in excess of 2% of their AGI. These deductions have all been suspended through 2025.
The child tax credit has been expanded and a new credit for other dependents has been created.
The child tax credit for children under 17 has doubled to $2000 and the income ceiling for claiming it has been raised to $200,000 for single parents and $400,000 for married couples. A new $500 credit has been created for other dependents who do not meet the requirements for the child tax credit, including dependent children over age 17, elderly parents, and disabled adult children.
Qualifying withdrawals from 529 savings accounts have been expanded.
Deposits to 529 accounts are untaxed when withdrawn for qualifying college expenses. Under the new plan, up to $10,000 a year can be withdrawn for elementary and secondary education tuition as well.
The health insurance mandate has been eliminated.
There will no longer be a federal tax penalty for not carrying insurance beginning in 2019. There may still be penalties at the state level. The remainder of the Affordable Care Act is still in effect.
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