TAX CUTS AND JOBS ACT FOR TAX YEAR 2018
HIGHLIGHTS OF THE TAX CUTS AND JOBS ACT FOR TAX YEAR 2018
New income tax rates & brackets
For tax years beginning after Dec. 31, 2017 and before Jan. 1, 2026, seven tax rates apply for individuals: 10%, 12%, 22%, 24%, 32%, 35%, and 37%. The Tax Cuts and Jobs Act also provides four tax rates for estates and trusts: 10%, 24%, 35%, and 37%.
Standard deduction increased
For tax years beginning after Dec. 31, 2017 and before Jan. 1, 2026, the standard deduction is increased to $24,000 for married individuals filing a joint return, $18,000 for head-of-household filers, and $12,000 for all other taxpayers. These amounts are adjusted for inflation in tax years beginning after 2018.
Personal exemptions suspended
For tax years beginning after Dec. 31, 2017 and before Jan. 1, 2026, the deduction for personal exemptions is effectively suspended because the statutory exemption amount is reduced to zero.
Child tax credit increased; partial credit for non-child dependents
For tax years beginning after Dec. 31, 2017 and before Jan. 1, 2026, the child tax credit is increased to $2,000. The income levels at which the credit phases out are increased to $400,000 for married taxpayers filing jointly ($200,000 for all other taxpayers) (not indexed for inflation). The amount of the credit that is refundable is increased to $1,400 per qualifying child, and this amount is indexed for inflation, up to the base $2,000 base credit amount. The earned income threshold for the refundable portion of the credit is decreased from $3,000 to $2,500. No credit will be allowed to a taxpayer with respect to any qualifying child unless the taxpayer provides the child’s SSN. In addition, a $500 nonrefundable credit is provided for certain non-child dependents.
State and local tax (SALT) deduction limited
For tax years beginning after Dec. 31, 2017 and before Jan. 1, 2026, except as described below, state, local, and foreign property taxes, and state and local sales taxes, are deductible only when paid or accrued in carrying on a trade or business or an activity.
However, a taxpayer may claim an itemized deduction of up to $10,000 ($5,000 for married taxpayers filing separately) for the aggregate of (i) state and local property taxes not paid or accrued in carrying on a trade or business or activity and (ii) state and local income, war profits, and excess profits taxes (or sales taxes in lieu of income, etc. taxes) paid or accrued in the tax year. Foreign real property taxes may not be deducted.
An amount paid in a tax year beginning before Jan. 1, 2018, for a state or local income tax imposed for a tax year beginning after Dec. 31, 2017, is treated as paid on the last day of the tax year for which such tax is so imposed, for purposes of applying the above limits. In other words, a taxpayer who, in 2017, pays an income tax that is imposed for a tax year after 2017, can’t claim an itemized deduction in 2017 for that prepaid income tax.
Mortgage interest deduction limited
For tax years beginning after Dec. 31, 2017 and before Jan. 1, 2026, the deduction for home mortgage interest is limited to interest on up to $750,000 ($375,000 for married taxpayers filing separately) of acquisition indebtedness and the deduction for interest on home equity indebtedness is suspended.
The new lower limit doesn’t apply to acquisition indebtedness incurred before Dec. 15, 2017.
A taxpayer who entered into a binding written contract before Dec. 15, 2017 to close on the purchase of a principal residence before Jan. 1, 2018, and who purchases the residence before Apr. 1, 2018, is considered to incur acquisition indebtedness before Dec. 15, 2017.
Alimony deduction by payor/inclusion by payee suspended
For any divorce or separation agreement executed after Dec. 31, 2018 (or executed on or before Dec. 31, 2018 but modified later if the modification expressly provides that the Act rules apply), alimony and separate maintenance payments are not deductible by the payor spouse and are not included in the income of the payee spouse
The Following items have also been affected by the passage of the TAX CUTS AND JOBS ACT:
New measure of inflation provided
Kiddie tax modified
Capital gains provisions conformed
Carried interests—new holding period requirement
New limitations on “excess business loss”
Deduction for personal casualty & theft losses suspended
Gambling loss limitation modified
Medical expense deduction threshold temporarily reduced
Individual charitable contribution deduction limitation increased
No deduction for amounts paid for college athletic seating rights
Due diligence requirements for claiming head of household filing status
To learn more about the impact of the TAX CUTS AND JOBS ACT , please speak to one of our Tax Advisors.
