The main topic of conversation recently, it seems, is the changes in the tax code. The recently passed Tax Cuts and Jobs Act is the biggest overhaul of the tax code in 31 years. While all of the changes could not possibly be discussed in one blog, I still like to provide an overview for my clients who are wondering how these changes will impact their lives (and taxes!). Here are eight major changes affecting individual taxpayers that I think are the most important.
Standard Deduction Nearly Doubled
For 2018, the standard deduction will be $24,000 for married filing joint filers, $18,000 for head of household filers, and $12,000 for everyone else. The deduction will be indexed for inflation after 2018.
Personal Exemption Eliminated
For many families, the loss of the personal exemptions wipes out the benefit they will receive from the increase in the standard deduction. For example, a married couple with three children for 2017 would have a standard deduction of $12,700 and personal exemption of $20,250 making their total deduction $32,950. For 2018, their total deduction will be $24,000, increasing their taxable income by $8,950.
Child Tax Credit Increased
The child tax credit is increased from $1,000 to $2,000 per child with $1,400 of that amount refundable. As long as the family in the above example has income of less than $400,000, they will benefit from this increased credit.
Limitation in the State Tax Deduction
For taxpayers who are still able to itemize, their total state and local tax deduction is limited to $10,000. This is total state and local taxes—income taxes, real estate taxes, and personal property taxes.
Mortgage Interest Deduction Limitation
Before 2018, taxpayers could deduct on Schedule A mortgage interest on their principal residence and a second residence of up to $1 million in acquisition debt plus home equity debt of up to $100,000. Under the new law, interest on home equity debt is no longer deductible. In addition, the acquisition mortgage debt is limited to $750,000. Any mortgage acquisition debt incurred before December 15, 2017 will not be subject to the new limits and the old ones will still apply.
Judith Ackland has more than 26 years of experience in accountancy and financial planning, including seventeen years as a CFO of a diverse business. She started Crystal Financial in 2010 to help a wide array of individuals, families, and business owners better understand their finances and how good financial management could help them achieve their goals. Judith has an MA in Professional Accountancy from the University of Nebraska at Lincoln as well as a Certified Public Accountant Certificate and a Certified Financial Planner designation.
