Tax Reform and What it Means for Your Personal TaxesOn December 22, 2017 the President signed The Tax Cuts and Jobs Act into law, the first major tax reform in 31 years. The new law makes many changes to the tax code. Every taxpayer is impacted. A highlight of the changes follows:
TAX RATES. Tax rates are reduced. The top rate is reduced from 39.6% to 37%. Lower rates are also reduced.
EXEMPTIONS AND THE CHILD TAX CREDIT. The deductions for personal exemptions is eliminated. An expanded child tax credit will help make up for the loss of personal exemptions for some families. The credit is increased to $2,000 (from $1,000) for qualifying children under 17. For children 17 and older and for other dependents, the credit is $500
STANDARD DEDUCTION. The new tax reform law doubles the standard deduction. The higher the standard deduction ($12,000 for singles, $18,000 for heads of household, and $24,000 for married filing joint) means that fewer taxpayers will benefit from itemizing deductions.
ITEMIZED DEDUCTIONS. Itemized deductions for all state and local taxes, including property taxes, are capped at $10,000. The limit on mortgage debt for purposes of the mortgage interest deduction is reduced from $1,000,000 to $750,000 for loans made after December 15, 2017. Loans made before December 15, 2017 are grandfathered at the $1,000,000 debt limit. The interest on home equity borrowing is no longer deductiable. The threshold for medical expense dedeuctions is lowered to 7.5% of adjusted gross income (from 10%) for ta years 2017 and 2018. Miscellaneous itemized deductions subject to the 2% of AGI limitation are not allowed. Miscellaneous itemized deductions lost because of the new law include employee business expenses, investment adviser fees, union dues, and tax preparation fees. Personal casualty losses are not allowed unless the losses are suffered in a federally declared disaster area.
ALIMONY. The new tax reform law eliminates the alimony deduction for agreements signed after December 31, 2018. Alimony income is not taxable for agreements signed after December 31, 2018. There is no change to the law for agreements signed before January 1, 2019.
MOVING EXPENSES. The new tax reform law eliminates the moving expense deduction and makes employer reimbursement of moving expenses taxable to the employee beginning in 2018.