Over the past couple of weeks, I have been asked 2 questions. “Are you ready for Christmas?” Yes, I am ready!! The second question is “What is the new tax bill going to do to my taxes?” That is a good question, but not easily answered. The effect will be different for each tax return. As I was reading over some of the changes, I was very happy and thought of clients that would benefit. But, on the flip side, there are some changes that will hurt some of you.
Here is a summary of some of the things in The Tax Cuts and Jobs Act. This does not include everything!! If you want to read all 1,097 pages of the bill, then click here . If you would just like to talk about something, give me a call.
All of these changes will begin January 1, 2018, (unless I state that it applies to 2017).
1. The tax rates have changed. Right now, we have 7 tax brackets: 10%, 15%, 25%, 28%, 33%, 35%, and 39.6%. Under the new law, we will still have 7 brackets, with different rates: 10%, 12%, 22%, 24%, 32%, 35% and 37%.
2. The standard deduction will increase to $24,000 for married filing joint (MFJ), $18,000 for heads of households (HOH), and $12,000 for all other individuals. This is an $11,300 increase for MFJ over the 2017 standard deduction. Great for those that take the standard deduction!
3. The personal exemption in 2017 is $4,050. Beginning in 2018 the personal exemption is $0. Not great for those with a lot of dependents!!! But #4 should help a little...
4. The child tax credit will increase to $2,000 per qualifying child. The maximum refundable credit will be $1,400. The bill also includes a new $500 nonrefundable credit for other qualifying dependents. For example, if you are claiming your parents on your return, you may now receive a credit for them. As with all good things, there is a threshold at which the credit will begin to phase out. It is $400,000 for MFJ and $200,000 for all others.
LET'S TALK DEDUCTIONS!!!
5. The home mortgage interest deduction has been modified. Right now, if you itemize you can deduct mortgage interest for purchases of up to $1,000,000 + an additional $100,000 for equity debt. Under the new bill, new mortgages will be capped at $750,000. And the deduction for interest on home equity debt will be eliminated.
6. If you itemize you can deduct state and local income taxes or sales taxes and your local property taxes. Under the new bill, you will be allowed to deduct up to $10,000 in all taxes. If you are planning on prepaying your 2018 state income taxes in 2017 to avoid the cap, you will not be allowed to take that deduction in 2017.
7. The charitable donation deduction will not change. And the charitable mileage rate will stay at 14 cents per mile. (The same rate it has been since 1998!!)