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New Year, New Tax Law: Understanding the Tax Cuts and Jobs Act

Nancy Crowley, CPA

As we all know, the Tax Cuts and Jobs Act was recently signed into law by President Trump.  This is a significant update to the tax code, since the last major tax law changes occurred in 1986.

Below is a summary of the tax law changes affecting federal individual taxes.  The chart compares the 2017 individual tax law provisions to the 2018 new individual tax law provisions.  Many of the individual provisions of the Tax Cuts and Jobs Act are temporary, are set to expire after 2025, and will revert to 2017 rates if there are no additional updates or changes to the tax code.

 Tax Rates

The easiest way to see the impact of the tax rate changes is to compare the 2017 marginal individual tax rates with the 2018 marginal individual tax rates.

2017 – Single Individuals   2018 – Single Individuals 
10% Taxable Income not over $9,325 10% Taxable Income not over $9,525
15% Over $9,325 but not over $37,950 12% Over $9,525 but not over $38,700
25% Over $37,950 but not over $91,900 22% Over $38,700 but not over $82,500
  24% Over $82,500 but not over $157,500
28% Over $91,900 but not over $191,650  
  32% Over $157,500 but not over $200,000
33% Over $191,650 but not over $416,700  
35% Over $416,700 but not over $418,400             35% Over $200,000 but not over $500,000
  37% Over $500,000
39.6% Over $418,400  

 

2017 – Married Filing Jointly   2018 – Married Filing Jointly
10% Taxable Income not over $18,650 10% Taxable Income not over $19,050
15% Over $18,650 but not over $75,900 12% Over $19,050 but not over $77,400
25% Over $75,900 but not over $153,100 22% Over $77,400 but not over $165,000
  24% Over $165,000 but not over $315,000
28% Over $153,100 but not over $233,500  
  32% Over $315,000 but not over $400,000
33% Over $233,500 but not over $416,700  
35% Over $416,700 but not over $$470,700        35% Over $400,000 but not over $600,000
  37% Over $600,000
39.6% Over $470,700  

 

Personal Exemptions

2017 – Single Indviduals 2018 – Single Individuals
$4,050 with a phaseout beginning at AGI of $261,500 and an upper limit og $384,000 None
2017 – Married Filing Jointly 2018 – Married Filing Jointly
$4.050 per person with a phaseout beginning at AGI of $313,800, and an upper limit of $436,300 None

 

Standard Deduction

2017 – Single Indviduals 2018 – Single Individuals
$6,350 $12,000
2017 – Married Filing Jointly 2018 – Married Filing Jointly
$12,700 $24,000

 

Medical Expense Deduction

2017 –  All Taxpayers 2018 – All Taxpayers
One of the few provisions that goes into effect in 2017, medical expenses are deductible when total unreimbursed medical expenses incurred is greater than 7.5% of AGI. Same as 2017 but this is a temporary two-year change in the law.

 

State and Local Income Taxes, Property Taxes, and in certain cases, Sales Tax

2017 – All Taxpayers 2018 – All Taxpayers
All deductible Limited to $10,000

 

Mortgage Interest Itemized Deduction

2017 – All Taxpayers 2018 – All Taxpayers
In general, mortgage interest is limited to loans of $1,000,000 plus home equity loan of $100,000 on a principal residence plus one other residence. Mortgage interest, on loans originating after 12/14/17, is limited to loans of $750,000 and no interest deduction on home equity loans.

 

Charitable Deductions

2017 – All Taxpayers 2018 – All Taxpayers
Depending on the type of donation and the type of charity, charitable donations are limited to 50%, 30% or 20% of AGI. Cash donations to public charities may be made with a 60% AGI threshold.  The 30% and 20% limitations continue.

 

Miscellaneous Deductions

2017 – All Taxpayers 2018 – All Taxpayers
Amounts greater than the 2% AGI floor are deductible.  Includes investment fees, tax preparation fees, legal fees, etc. No deduction

 

Alternative Minimum Tax

At one point there was discussion of repealing the individual alternative minimum tax however it was kept in the Act.  The alternative minimum tax exemption amounts increased and the corresponding phaseout threshold amounts also increased starting in 2018.

 

Exclusion of Gain on Sale of Principal Residence

2017 – All Taxpayers 2018 – All Taxpayers
In general, $250,000 for individuals and $500,000 for married filing joint return filers. Exclusion amounts remain the same.

 

Alimony

2017 – All Taxpayers 2018 – All Taxpayers
Alimony is deductible by the payer and includible in income by the payee. No deduction for the payer and no inclusion in income by the payee for divorces settled after 12/31/18.

 

529 Education Plans

2017 – All Taxpayers 2018 – All Taxpayers
529 Plans may be used to cover the costs of tuition, fees, books, supplies, and equipment for students of higher education, college, and post-graduate education. In addition to the 529 Plan provisions under 2017, up to $10,000 per student may be used to cover tuition at a public, private, or religious elementary school or secondary school.

 

Estate and Gift Tax Exclusion

2017 – All Taxpayers 2018 – All Taxpayers
The aggregate estate, gift, and generation skipping transfer exemption amount is $5,490,000 per indvidual. The aggregate estate, gift, and generation skipping transfer exemption amount increases to $11,200,000 per individual.

 

Qualified Dividends and Capital Gains

There has been no change to the current tax treatment of qualified dividends and capital gains.

The impact of the Tax Cuts and Jobs Act will vary depending on each person’s individual tax situation. Once your 2017 taxes have been prepared, RINET or your accountant will be able to prepare a projection to determine whether in 2018 you may see a reduction or an increase in your taxes. 

If you have any questions regarding the Tax Cuts and Jobs Act or its impact, please contact your relationship advisor.