On December 22, 2017 President Trump signed the Tax Cuts & Jobs Act (TCJA), a comprehensive tax reform plan that will affect virtually every United States taxpayer. With such a massive change sweeping into place rather quickly, we thought it important to take a moment and highlight just a few key changes that many taxpayers should be aware of. Please keep in mind that most of these changes will begin January 1, 2018 and as such will not affect your 2017 Income Tax Return.

Personal and dependent exemptions are eliminated

Individuals will no longer be able to claim an exemption for themselves or any dependents. By comparison, individuals are entitled to a $4,000 exemption for themselves and each dependent claimed in 2017.

Child Tax Credit is increased 

The new tax law increases the Child Tax Credit available to anyone claiming a dependent under the age of 17 from $1,000 to $2,000. The refundable portion of this credit is increased from $1,000 to $1,400, meaning individuals owing no tax for the year may claim a refund of up to that amount. The previous income phaseout levels have been more than doubled, meaning many higher income individuals may be entitled to this credit who have not been in the past.

New credit for non-child dependents

Individuals claiming a non-child dependent will be able to claim up to a $500 nonrefundable credit. This includes any children 17 years of age or older that do not qualify for the Child Tax Credit.

Standard Deduction increased

The standard deduction will increase in 2018 to:

  • $12,000 (single)
  • $18,000 (head of household)
  • $24,000 (married filing jointly)

Many itemized deductions have been eliminated entirely or limited

  • Employee business expenses, tax preparation fees, investment interest expense, and personal casualty or theft losses will be fully eliminated as deductions.
  • State and local income taxes as well as property taxes will be limited to a $10,000 deduction ($5,000 if Married Filing Separate)
  • Home mortgage interest is limited to:
    • interest paid on a new mortgage up to $750,000 ($350,000 if Married Filing Separate) if taken out after December 14, 2017
    • for mortgages taken out prior to December 15, 2017 interest can be deducted on mortgages of up to $1,000,000
    • interest on a home equity loan is no longer deductible
  • Charitable deductions will be limited to 60% of a taxpayer’s adjusted gross income
  • The overall limit on itemized deductions is eliminated

Many “above-the-line deductions” eliminated or limited

  • Alimony paid per orders executed after December 31, 2018 will no longer be deductible by the payor. The recipient will no longer pick these payments up as taxable income.
  • The tuition and fees deduction was not renewed under the TCJA
  • Moving expenses are dissallowed

Health care penalty eliminated

Beginning in 2019 the penalty for failure to obtain qualifying health insurance is eliminated.

Self-employed taxpayers may claim a new deduction for qualified business income

Self-employed individuals who receive income from a sole proprietorship, partnership, or S-Corporation may be able to deduct up to 20% of their qualified business income. There are limitations on the deduction but many small business owners will benefit from the deduction.

As always, please contact your tax professional if you have any further questions or would like to discuss in more depth how these changes will effect you.