The Tax Cuts and Jobs Act (TCJA) affects individual taxpayers across the board for the 2018 tax year. Learn about some of the highlights here.
The Tax Cuts and Jobs Act – Major Changes for Individual Taxpayers
1. Standard Deduction — Starting the 2018 tax year, the personal exemption has been eliminated. In its place the standard deduction has been nearly doubled to $12,000 for single filers, $24,000 for Married filing jointly or qualifying widow(er), $12,000 for Married filing separately, and $18,000 for head of household. As a result, many taxpayers will no longer need to itemize their deductions.
2. Rates – Marginal tax rates now range from 10 percent to 37 percent. See tax tables here.
3. Capital Gains – The capital gains rules remain largely unaffected. The rate is zero percent for low-income taxpayers, 15 percent for those in the 22 percent or higher income tax bracket, 20 percent for married couples with income over $480,050 and single individuals with income over $426,700.
4. Standard Deductions – TCJA nearly doubles the standard deduction for 2018. The standard deduction will be $24,000 for married couples and $12,000 for single individuals. The personal exemptions have been repealed.
5. Mortgage Interest – The deduction has changed so that taxpayers with mortgages may deduct interest for new loans up to $750,000 on first and second homes. The exception being that existing mortgages up to $1 million will be grandfathered into the new rules.
6. State and Local Taxes – The deduction limit for state and local income taxes was previously uncapped. Now taxpayers may only deduct up to $10,000 per year of their total state and local income and property tax.
7. Medical Expenses – The floor for claiming medical expenses has been reduced to 7.5% of AGI for 2017 and 2018. The floor is set to rise back up to 10% in 2020.
8. Charitable Contributions – The limit on charitable cash contributions has been increased from 50% to 60% of the taxpayers adjusted gross income.
9. Deduction and Exclusion for Moving Expenses – This deduction has been suspended with the exception of members of the U.S. Armed Forces on active duty that are required to move pursuant to a military order.
10. Deduction for Alimony Payments – Alimony and separate maintenance payments are no longer deductible for any divorce or separation agreement executed after December 31, 2018. Similarly, alimony and separate maintenance payments are no longer included in income if the payments are based on a divorce or separation agreement executed after December 31, 2018.
11. Alternative Minimum Tax (AMT) – The 2018 AMT exemptions have been increased to $70,300 for single filers and $109,400 for married filing joint filers.
12. Child Tax Credits – As personal exemptions have been eliminated dependent exemptions can no longer be claimed to reduce taxpayer income. To offset this the child tax credit has been increased to $2,000 per child under the age of 17. Up to $1,400 of the $2,000 is refundable.
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Any tax advice herein is based on the facts provided to us and on our interpretation of tax legislation as it reads at the time the advice is provided. Tax law is subject to continual change, at times on a retroactive basis and may result in incremental taxes, interest or penalties. We are not responsible for updating our advice for changes in law or interpretation after the date the advice is provided. Every tax situation is different. We are not responsible for the tax implications to any individual or entity that may act on this advice.