What Individuals Need to Know About the Tax Cuts and Jobs Act of 2017

A lot has been written in the press about the U.S. Tax Cuts and Jobs Act of 2017. Our experts at Barsz Gowie Amon & Fultz took the time to study the comprehensive legislation, and provide the following list of tax changes and implications so you will be better prepared at tax time.

Individual Tax Changes

  • New tax brackets: 10%, 12%, 22%, 24%, 32%, 35%, and 37%
  • New standard deductions:
    • $24,000 Married Filing Jointly (MFJ)
    • $18,000 Head of Household
    • $12,000 all others
  • Personal exemptions are no longer allowed.
  • Tax bracket amounts, standard deduction amounts, and various other tax figures will be adjusted for inflation by a new index, the chained CPI-U. This is permanent.
  • Children’s unearned income is taxed according to the brackets applicable to trusts and estates, which are 10%, 24%, 35%, and 37%.
  • Net capital gains and qualified dividends: Generally, the present law maximum rates and breakpoints are retained, indexed for inflation that exists under present law.
  • Personal casualty losses: The personal casualty and loss deduction is suspended, except for personal casualty losses incurred in a federally declared disaster.
  • Wagering losses are modified to provide that all deductions incurred in carryout wagering transactions are limited to the extent of winnings.

 

Child Tax Credit

  • The child tax credit was increased to $2,000.
  • Phase-out credit levels have increased.
  • MFJ phase-out is $400,000.
  • Refundable credit is increased to $1,400 per qualifying child.

 

Changes to Itemized Deductions

  • Medical deduction: You can deduct medical expenses over the threshold of 7.5% of your adjusted gross income (AGI).
  • State, local and property taxes paid: Maximum $10,000 deduction.
  • Charitable contributions deduction: Maximum allowed for cash contributions to public charities and certain foundations is increased to 60% of your AGI.
  • Miscellaneous itemized deductions subject to the 2% floor. All are suspended.
  • Mortgage interest deduction: Interest on home equity indebtedness is suspended. Mortgage interest is deductible on the first $750,000 of mortgage debt.
  • Alimony deduction: Alimony is not deductible for the payer spouse and not included in income of the payee spouse for any divorce or separation agreement executed after Dec. 31, 2018.

 

Other Changes

  • Alternative minimum tax (AMT) exemption amounts are increased and the exemption does not begin to be reduced until income is over $1 million for MFJ returns and $500,000 for all other personal returns.
  • The penalty for not having qualified health insurance is removed after 12/31/2018.
  • Changes in the rules for re-characterization of traditional IRAs to Roth IRAs.
  • Extension of time to rollover loans from qualified retirement plan which are not paid back due to layoff or termination from employment.

 

Contact us if you have questions about how these tax changes and implications affect yourself or your family, or if you need helping planning your best tax strategy for the future.