2017 Tax Cuts and Jobs Act – Individuals
See “Tax Act – Business” to learn more about the impact for your business.
Tax Act Overview
The Tax Cuts and Jobs Act of 2017, is actually called “An Act to Provide for Reconciliation Pursuant to Titles II and V of the Concurrent Resolution on the Budget for Fiscal Year 2018”, but we will simply call it the “Tax Act”. Though one of the intentions of the Tax Act is to simplify the tax code, the official name should be some indication regarding its complexity. The Tax Act is not retroactive except for a very few unique expensing provisions, so for nearly everyone, your upcoming income tax filing due this spring for the 2017 tax year filing will NOT be effected. However, the changes are more significant than most realize, so now is the time to implement tax planning for 2018 to optimize the greatest tax advantages for your 2018 income tax filing. Below you will find a rundown of a few of the significant changes for individuals. If you are looking for insight regarding changes to your business, hopefully you saw the link above. Be sure to keep in mind our insight is not intended to replace advice from your CPA, but rather to help you better understand some of the key changes you may wish to seek further guidance on.
Also, be aware that many of provisions of the Tax Act are temporary and thus will revert in the future unless Congress takes action to make them permanent. Most of the individual tax changes expire December 31st, 2025. We recommend you contact your Congressman and encourage them to address the temporary nature of much of the Tax Act now. List of Congress members.
Finally, keep in mind that some of the old tax law provisions are grandfathered or may phase in after 2018; to clarifiy, some of the new tax provisions only apply to actions or transactions made starting in 2018 or may not start until after 2018.
The Tax Act itself . . . . a direct link to the actual full language.
Changes under the Tax Act for Individuals
- Starting in 2018, the tax rate is being reduced and the tax brackets are being increased in most cases. This means that the rate that you pay is a lower percentage and you will pay that lower percentage up to a higher level of income before the next higher rate comes into effect (in most cases). Below, we have put together a comparison between 2017 and 2018 for individual taxpayers filing married and joint. Remember, this will not impact your 2017 tax filing that you are about to complete, but will reduce the total taxes owed from 2018. The reduction could be reflected as a lessor amount coming out of your check now or a smaller bill (bigger refund) for your 2018 taxes filed in 2019. Trusts unfortunately still pay the same high rates that they have paid in the past.
- Standard Deductions nearly double. If you don’t currently itemize deductions, this is a good thing. If you do itemize deductions, it means that the threshold to actually benefit from itemization just became higher in addition to losing certain deductions (See below). According to the Joint Committee on taxation about 30% of taxpayers currently itemize, but that is expected to drop to 6% now. There are several strategies to address this issue that might actually allow you greater deductions than in the past if you do itemize, particularly if you own a small business. Schedule an appointment with us to discuss. Also remember that there is a significant difference in tax deductions and tax credits. A tax deduction is an expenses that lowers your income whereas a tax credit is a credit against the taxes you owe, so a $4 tax deduction would equate to a $1 tax credit if you are paying a 25% marginal tax rate.
- Standard Exemption – Gone. Most persons file using the personal exemption, which for 2017 was $4,050. This exemption is now gone and could largely offset the standard deduction doubling.
- Schdeule A (Itemized Deductions) – Many items are no longer deductible or the threshold changes, so not only is the threshold higher to exceed the standard deduction, but many of the deductions you may have previously taken may be gone or harder to meet due to their own individual threshold changes.
- Casualty and Theft Losses – Eliminated except in a declared disaster area (e.g. hurricane, wildfire, etc.)
- Medical Expenses – Dropped to 7.5% from 10%, but only 2017-2019; one of the few retroactive changes.
- Mortgage Interest – See Below
- Home Equity (HELOC) – See Below
- State & Local Taxes – See Below
- Alimony – See Below
- Other – The following are also no longer deductible
- Tax Preparation
- Investment Fees
- Unreimbursed job expenses
- Unreimbursed moving expenses
- Mortgage Interest – The limit on mortgage interest which is deductible is being dropped on acquisition indebtedness from $1,000,000 to $750,000 ($375,000 MFS). This is not an issue if you have your home paid off or likely if you are one of our clients in the Southeast. If you are one of our clients on the West Coast, this may be a bigger issue the next time you buy a home, but only if you itemize deductions. This provision is grandfathered, so it will not go into effect on existing mortgages, only new mortgages.
- Home Equity (HELOC) – The Home Equity Line of Credit or HELOC is no longer deductible.
- State & Local Tax – There will now be a $10,000 limit on the deduction of state and local taxes including property taxes (except taxes paid through doing business). Again, if you are in the Southeast, probably not a big deal; if you are on the West Coast, it could make a difference.
- Child Tax Credit – Increase
- Credit increased from $1,000 to $2,000 per qualifying child, under the age of 17
- Up to $1,400 is now refundable
- $500 nonrefundable credit for qualifying dependents (not qualifying children)
- Raises the AGI phase-out thresholds
- $400,000 – MFJ
- $200,000 – all others
- Alimony – No longer deductible to the payer and no longer income to the recipient. This applies only to new divorces occurring after December 31, 2018, so it is grandfathered an extra year.
- Estate Tax – Limit increased to $22.4 million for Married Filing Joint (MFJ). The stepped-up basis also remains.
- AMT – If you’ve never heard of AMT (Alternative Minimum Tax), just be thankful. If you are familiar with it, you can appreciate that the exemption amount increased to $109,400 for MFJ ($70,300 for single). Also, the phaseout increases to income levels of $1 million+ ($500,000 others).
- ACA (Affordable Care Act – Obamacare) – Repeals individual mandate penalty for penalties assessed “after” 2018.
- 1031 Exchanges – There are no changes to the primary treatment of exchanges of real property that most persons think of when considering a 1031 ” like kind” exchange. However, personal property is now excluded from 1031. One particular use of the 1031 that has been used recently for personal property is cryptocurrency (e.g. Bitcoin) exchange; under the new Tax Act this is no longer possible.
- UNCHANGED – Qualified Dividends and Long-term Capital Gains still receive preferential tax treatment and remain unchanged. However, the other Affordable Care Act (ObamaCare) taxes other than the individual mandate also remain in place, such as the Net investment Income Tax, the Additional Medicare Tax, and the Medical Device Excise Tax.