On Friday, December 22, 2017, President Donald Trump signed the massive tax bill new tax bill that is being touted as the most extensive overhaul of the federal tax system since 1986. Under this new bill, there are some significant changes for both individuals and families. This article provides an overview of what you can expect in the 2018 tax year. While this article doesn’t give a list of every change to the tax code, it includes the essential elements that will affect a large population. Find yourself and situation in the sections below and start planning!
You Own a Home
For many taxpayers in high-tax states, the $10,000 limitation for deductions for state and local property, income, and sales taxes will represent a substantial tax cost in 2018 and beyond. Your current mortgage-interest deductions won’t be affected, but if you move, that will change. Fewer people will itemize, though, since the standard deduction will increase from $6,350 to $12,000 for individuals and married couples filing separately, from $9,350 to $18,000 for heads of household, and from $12,700 to $24,000 for married couples filing jointly.
You’re Purchasing (or Selling) A Home
Under current law, homeowners can deduct the interest on a mortgage of up to $1,000,000, or $500,000 for married taxpayers filing separately. Anyone who takes out a mortgage between December 15, 2017, and December 31, 2025, can only deduct interest on a mortgage of up to $750,000, or $375,000 for married taxpayers filing separately.
You Itemize and File Schedule A
The standard deduction has increased from $6,350 to $12,000 for individuals and married couples filing separately, from $9,350 to $18,000 for heads of household, and from $12,700 to $24,000 for married couples filing jointly. This change means many families that used to itemize their deductions using Schedule A will now take the standard deduction. The Joint Committee on Taxation expects that 94 percent of taxpayers will claim the standard deduction starting in 2018; about 70 percent claim the standard deduction under current law. Not filing schedule A means less record keeping and less tax-prep time, but it also means charitable contributions will effectively no longer be tax deductible for many taxpayers because they won’t itemize.
You Have Minor Children
The child tax credit will increase from $1,000 to $2,000 per child under age 17. It’s also refundable up to $1,400, which means that even if you don’t owe tax because your income is too low, you can still get a partial child tax credit. The bill also makes the tax credit more widely available to the middle and upper class. In 2017, single parents can’t claim the full credit if they earn more than $75,000 and married parents can’t claim it if they earn more than $110,000. Those thresholds are increasing to $200,000 and $400,000 from 2018 through 2025.
As for age, current law applies to children under age 17; the tax bill doesn’t change the age threshold for the child tax credit.
You Have Children in Private School
529 plans have been expanded. In addition to using them to fund college expenses, parents may now use them to pay for K-12 education tuition and related educational materials and tutoring.
You Care for Elderly Relatives or Have Kids 17+
For dependents who don’t qualify for the child tax credit, such as college-aged children and dependent parents, taxpayers can claim a nonrefundable $500 credit, subject to the same income limits as the new child tax credit. Under current law, taxpayers can claim an exemption for qualifying relatives who meet dependent standards, which include having a gross income of less than $4,050 and receiving more than half of their support from you.
You Have (or Will Inherit) a Large Estate
The current federal estate-tax exemption thresholds are $5.49 million for individuals and $10.98 million for married couples. If you die with assets worth less than those amounts, you don’t owe any estate tax. From 2018 through 2025, the thresholds doubles to nearly $11 million for individuals and nearly $22 million for couples.
According to estimates, about 5,500 households will owe estate tax in 2017 and will owe a total of $19.9 billion after credits.
The top estate-tax rate remains 40%. The estate tax uses a bracketed system with increasing marginal rates, just like the individual income tax does. It starts at less than 17% but escalates quickly. Once your taxable estate (the amount beyond the exemption) reaches six figures, you’re already in the 30% bracket.
You can learn more about tax planning by calling us to schedule an EPIC Protection Planning Session, where we will identify the best strategies for you and your family. Call today at 770-933-9009 or reach out via our online contact form.
