Tax Law Highlights
Americans will continue to be placed in one of seven tax brackets based on their income. But the rates for some of those
brackets have been lowered. The new rates are: 10%,12%,24%,32%,35% and 37%.
The Government wants fewer people to itemize their taxes. To achieve this, they've nearly doubled the standard
deduction. For single filers, the standard deduction has increased from $6,350 to $12,000; for married couples filing
jointly, it's increased from $12,700 to $24,000.
Previously, you could claim a $4,050 personal exemption for yourself, your spouse and each of your dependents, which
lowered your taxable income. No longer. For some families, the elimination of the personal exemption will reduce or
negate the tax relief they get from other parts of the reform package.
The state and local tax deduction, or SALT, remains in place for those who itemize their taxes--but now there's a
$10,000 cap. Previously, filers could deduct an unlimited amount for state and local property taxes, plus income or
The child tax credit has doubled to $2,000 for children under 17. It's also now available, in full, to more people. The
entire credit can be claimed by a single parent who makes up to $200,000, and married couples who make up to
Taxpayers may now claim a $500 temporary credit for non-child dependents. This can apply to a number of people
adults support,such as children over age 17, elderly parents or adult children with disabilities.
The alternative minimum tax, a parallel tax system that ensures people who receive a lot of tax breaks still pay
some federal income taxes, remains in place for individuals. But fewer people will have to worry about calculating
their tax liability under the AMT moving forward. The exemption has been raised to $70,300 for singles, and to
$109,400 for married couples.
Current homeowners are in the clear. But from now on, anyone buying a new home will only be able to deduct the
first $750,000 of their mortgage debt. That's down from $1 million. This is likely to affect people looking for homes
in more expensive coastal regions. Free $100K of equity line credit is gone unless used strictly for home improvements.
The deduction for student loan interest, which is up to $2,500 per year, is safe.
The deduction for medical expenses wasn't cut. In fact, it's been expanded for two years. In that time, filers can deduct
medical expenses that add up to more than 7.5% of adjusted gross income. In the past, the threshold for most Americans
was 10% of adjusted gross income.
The deduction for teachers who spend their own money on school supplies was left alone. Educators can continue to
deduct up to $250 to offset what they spend on classroom materials.
Drivers of plug-in electric vehicles can still claim a credit of up to $7.500. Just as before, the full amount is good
only on the first 200,000 electric cars sold by each automaker. GM, Nissan and Tesla are expected to reach that number
sometime next year.
Homeowners who sell their house for a gain will still be able to exlcude up to $500,000 (or $250,000 for single filers)
from capital gains, so long as they're selling their primary home and have lived there for two of the past five years.
In the past, funds invested in 529 savings accounts wasn't taxed--but it could only be used for college expenses.
Now, up to $10,000 can be distributed annually to cover the cost of sending a child to a "public, private or religious
elementary or secondary school".
Alimony payments, which are codified in divorce agreements and go to the ex-spouse who earns less money, are
no longer deductible for the person who writes the checks. This provision will apply to couples who sign divorce
or separation paperwork after December 31, 2018.
There may be some exceptions for members of the military. But most people will no longer be able to deduct the
cost of their U-Haul when they move for work.
Before tax reform, few estates were subject to estate tax, which applies to the transfer of property after someone dies.
Now, even fewer people have to deal with it. The amount of money exempt from the tax--previously set at $5.49 million
for individuals, and at $10.98 million for married couples--has been doubled.
The Government failed to repeal Obamacare in 2017, but they managed to get rid of one of the health law's key
provisions with tax reform. The elimination of the individual mandate, which penalizes people who do not have
health care, goes into effect in 2019.
The corporate tax rate has been cut from 35% to 21% starting in 2018. The alternative minimum tax for corporations
has been thrown out altogether.
The tax burden by owners, partners and shareholders of S-corporations, LLCs and partnership--who pay their
share of the business' taxes through their individual tax returns--has been lowered via a 20% deduction.