The Tax Cuts and Jobs Act (TCJA) makes tax changes that impact all taxpayers. For individual taxpayers and their families, summarized changes include the followings:
1) Repeal of the Personal Exemption
Under the TCJA, personal exemptions are repealed ($4,050 in 2017) for 2018 through 2025.
2) Increase in the Standard Deduction
For tax year 2018, it increases the standard deduction from $13,000 to $24,000 for married individuals filing a joint return; $9,550 to $18,000 for head-of-household filers; and $6,500 to $12,000 for all other individuals. These standard deduction amounts are indexed for inflation for tax years beginning after 2018. The additional standard deduction for the elderly and the blind ($1,300 for married taxpayers, $1,600 for single taxpayers) is retained.
3) Modification to Itemized Deductions
Mortgage interest deduction. The TCJA limits the mortgage interest deduction to interest on $750,000 of acquisition indebtedness ($375,000 in the case of married taxpayers filing separately), for tax years beginning 2018 through 2025. For acquisition indebtedness incurred before December 15, 2017, the Act allows current homeowners to keep the current limitation of $1 million ($500,000 in the case of married taxpayers filing separately). Taxpayers may continue to include mortgage interest on second homes but within those lower dollar caps. However, no interest deduction will be allowed for interest on home equity indebtedness.
State and local taxes. The TCJA limits annual itemized deductions for all nonbusiness state and local taxes deductions, including property taxes, to $10,000 ($5,000 for a married taxpayer filing a separate return) for 2018 through 2025. Sales taxes may be included as an alternative to claiming state and local income taxes.
Miscellaneous itemized deductions. The TCJA repeals all miscellaneous itemized deductions for tax years 2018 through 2025 that are subject to the two-percent floor under current law.
Medical expenses. The TCJA lowers the threshold for the deduction to 7.5 percent of adjusted gross income (AGI) for tax years 2017 and 2018.
Casualty losses. For tax years 2018 through 2025, a casualty loss will only be allowed to the extent it is attributable to a federally declared disaster.
The phaseout of itemized deductions is suspended for tax years 2018 through 2025.
4) Doubling of the Child Tax Credit
The TCJA temporarily increases the current child tax credit from $1,000 to $2,000 per qualifying child. Up to $1,400 of that amount is refundable. The child tax credit is also expanded to provide for a $500 nonrefundable credit for qualifying dependents other than qualifying children. More families will be able to take advantage of the credit due to an increase in the adjusted gross income phaseout thresholds, starting at $400,000 for joint filers ($200,000 for all others).
Keep in mind that many of the changes to the Internal Revenue Code in the Tax Cuts and Jobs Act are temporary. This is true especially with respect to the provisions impacting individuals. If you have any questions related to tax reform and the impact on your tax liability, please do not hesitate to call our office.