Tax Reform & Individuals: How Tax Code Changes Affect You

Tax Reform & Individuals: How Tax Code Changes Affect You

The tax legislation just passed by Congress makes some significant changes to the tax laws affecting individuals in many ways. Here are some of the highlights:

Increase in the standard deduction

  • Through 2025 for individual taxpayers, standard deduction increases to $24,000 for married taxpayers filing jointly, $18,000 for heads of households, and $12,000 for all other individuals.
  • The bill repeals all personal exemptions through 2025.

Dependents

  • The bill increases the amount of the child tax credit to $2,000 per qualifying child. The maximum refundable amount of the credit would be $1,400.
  • The bill also creates a new nonrefundable $500 credit for qualifying dependents who are not qualifying children.
  • The income phaseout limits are increased to $400,000 for married taxpayers filing a joint return and $200,000 for other taxpayers.

Home & Property

  • The home mortgage interest deduction for interest paid on debt decreases from $1 million to $750,000 of acquisition indebtedness.
  • The home equity loan interest deduction has been repealed through 2025.
  • The bill has limited the amount individuals would be allowed to deduct in state and local income or property taxes to $10,000 ($5,000 for married taxpayers filing separately).
  • Through 2025, moving expense reimbursements are no longer excludable from gross income and wages, except in the case of a member of the armed forces on active duty who moves pursuant to a military order.

Charitable Contributions

  • The bill increases the income-based percentage limit for charitable contributions of cash to public charities to 60% of AGI.
  • You can no longer deduct payments made for college athletic event seating rights (i.e. Tide Pride and Tigers Unlimited).

Estate and Gift Tax

  • The bill has doubled the estate and gift tax exemption for estates of decedents dying and gifts made after Dec. 31, 2017, and before Jan. 1, 2026.
  • The basic exclusion amount would increase from $5 million to $10 million and would be indexed for inflation occurring after 2011.

Miscellaneous Itemized Deductions

  • All miscellaneous itemized deductions subject to the 2% of AGI floor under current law have been repealed through 2025 (i.e. tax prep fees, legal fees, investment advisory fees, etc.).

Alimony

  • For any divorce or separation agreement executed after Dec. 31, 2018, the bill provides that alimony and separate maintenance payments are not deductible by the paying spouse.
  • It also repeals the provisions that provide that such payments are includible in income by the spouse who receives the alimony.

Pass-Through Business

  • For tax years after 2017 and before 2026, individuals will be allowed to deduct 20% of “qualified business income” from a partnership, S corporation, or sole proprietorships, as well as 20% of qualified real estate investment trust (REIT) dividends, qualified cooperative dividends, and qualified publicly traded partnership income.
  • The deduction will not be allowed for specified service trades or businesses. “Specified service trades or businesses” include any trade or business in the fields of accounting, health, law, consulting, athletics, financial services, brokerage services, or any business where the principal asset of the business is the reputation or skill of one or more of its employees.
  • There is, however, an exclusion from the definition of specified service trades or businesses for qualified businesses. The exclusion is based on income levels and it phases out for a taxpayer with taxable income in excess of $157,500 or $315,000 in the case of a joint return.

AMT

  • For tax years beginning after Dec. 31, 2017, and beginning before Jan. 1, 2026, the AMT exemption amount has been increased to $109,400 for married taxpayers filing a joint return (half this amount for married taxpayers filing a separate return) and $70,300 for all other taxpayers (other than estates and trusts). The phaseout thresholds have also been increased to $1 million for married taxpayers filing a joint return and $500,000 for all other taxpayers (other than estates and trusts). The exemption and threshold amounts are indexed for inflation.

Medical

  • Effective after 2018, the bill has eliminated the penalty under Sec. 5000A (individual mandate), imposed on taxpayers who do not obtain health insurance that provides at least minimum essential coverage.
  • For tax years 2017 and 2018, you can deduct out-of-pocket medical expenses which exceed 7.5% of AGI. This will revert to 10% in 2019.

There are a lot of changes, but the good news is that none of them affect your 2017 filing, which we can begin working on in January 2018.  For those with businesses, we can also help you understand any changes that will affect you.