2018 Individual Tax Law Changes

January 22, 2018 by Jeff Benson
Copeland Buhl, Tax Services

The recently enacted Tax Cuts and Jobs Act included many tax changes that will impact individual taxpayers.  Most changes are effective starting in 2018 and end in 2025.  This article includes our top 10 list of these changes.  Future articles will dive into the details of some of these changes.

Tax Rate Changes
All the tax brackets have been changed. The highest tax bracket has been lowered from 39.6% to 37%.  While we can’t look at just the rate changes in a vacuum, these lower rates may help save taxpayers money.

The following graphs compare the old brackets to the new for the single and married filing joint taxpayers.

Standard Deduction
The standard deduction is now much larger. It has been increased to $24,000 for joint filers, $18,000 for heads of household, and $12,000 for single and married separate filers.  Taxpayers 65 and over will continue getting an additional deduction on top of these amounts.  Therefore, a lot more taxpayers will simply take the standard deduction versus itemizing.

Child Tax Credit
The child tax credit has been greatly expanded. The credit itself is larger and the income limitations have increased.  Previously, taxpayers started losing their child tax credit at $110,000 of income for married filing joint filers.  This threshold has increased to $400,000, which will enable a lot more people to take advantage of the child tax credit than before.

The maximum credit has been increased to $2,000 per child under age 17.  There is also a new $500 credit for dependents who don’t qualify for the under 17 credit.  This would include college-age kids, adult children, parents, etc. who are claimed as dependents.

Easing of Alternative Minimum Tax
While there was talk about eliminating AMT completely for individual taxpayers, the final tax bill left it in. However, several provisions will help reduce the number of taxpayers who are subject to it.  See separate article for more information on the change to AMT.

State and Property Tax Deductions
The combined property tax plus state tax deduction is limited to $10,000 ($5,000 for married filing separate). This change has garnered lots of attention in the news as high-tax states are upset about the limitation.  Since the new law was enacted, the representatives from New York have already proposed another bill to remove this limitation.  Stayed tuned for future developments if this bill passes!

Note: This limitation only applies to personal deductions.  Real estate taxes paid for business and rental properties will continue to be fully deductible.

Mortgage Interest
The rules for the deduction on interest for home equity loans and new mortgages have changed. See separate article for more information on these changes.

Eliminated Deductions
Several deductions have been nixed. Personal exemptions, 2% miscellaneous itemized deductions (including investment expenses, tax prep fees, unreimbursed employee expenses, etc.), and the domestic production activities deduction have been eliminated.  On the positive side, the phase-out of itemized deductions for high-income taxpayers has also been eliminated.

For divorces finalized after 12/31/18, the alimony paid is not a deduction and alimony received is not taxable income. Divorces finalized earlier can be modified to follow the new rules if the modification specifically provides that the new rules apply to the modification.

Qualified Business Income Deduction
Taxpayers may now be able to deduct up to 20% of their business income. See separate article for more information on this new deduction.

Loss Limitations
The overall business loss is limited to $500,000 for married joint filers ($250K for everyone else). Any loss in excess of this will be treated as a net operating loss that can be carried forward to the following year.  Further, net operating losses incurred in 2018 and later will be limited to 80% of taxable income.  See future article for more information on these limitations.

If you would like to discuss any of these items or would like additional information please give us a call.

Jeff Benson, CPA

Copeland Buhl & Company PLLP

(952) 476-7100