Congress passed the Tax Cuts and Jobs Act Bill (TCJA) in December 2017. Implementation of some key provisions is still being finalized, but the following are major changes that will affect tax returns you file for 2018 through 2025:
Changes to Tax Brackets
Most taxpayers will benefit from a decreased tax bracket beginning in 2018. However changes to withholding tables result in tax cuts are being doled out throughout the year so many taxpayers will not see a large increase in refunds next filing season.
The $4,050 deduction you previously claimed for all dependents? Gone for all filers for 2018.
Increases to $24,000 MFJ, $18,000 HOH, $12,000 Single filers
Currently, slightly more than 30% of all taxpayers file a Schedule A. TCJA is expected to cut this number to about 5%. Changes to this form include:
- A $10,000 cap on the deduction for property tax, state income tax and sales tax. state and local income
- Elimination of Miscellaneous Itemized Deductions through 2025.
- Casualty losses only allowed in federally declared disaster areas.
- Mortgage Interest – For properties acquired after December 15, 2017, the mortgage interest deduction is limited to acquisition indebtedness of less than $750,000. Acquisition debt of up to $1,000,000 is grandfathered in for prior purchases. However, starting with the 2018 tax return, any mortgage debt not used to acquire, build, or improve a primary residence will no longer be deductible and this change is retroactive. The actual use of the funds, not what lenders call the loan, determines deductibility. Taxpayers need to review existing loans and determine what percent was used for a purpose other than buying, building or substantially improving a primary home, as this can no longer be deducted.
- Charitable – Will not be deductible on the Federal tax return unless total Schedule A items exceed new standard deduction limits. Consider bunching donations in alternate years and remember that charitable contributions can still be taken on the Colorado Tax Return. The allowable deduction has also increased to 60% of AGI from 50%.
Child Tax Credits
The good news is the exemption limits have been raised ($400,000 MFJ/$200,000 all others) making more parents eligible and the credit has doubled to $2,000 per child. The bad news is that the dependency exemption of $4,050 has been eliminated.
Unreimbursed moving expenses are no longer deductible.
Alternative Minimum Tax
This did not go away, but exemption amounts have increased temporarily. The change in deductibility of state taxes, sales tax and property tax will also reduce the number of people subject to AMT. The 2018 exemption amounts are: $109,400 MFJ, $54,700 MFS and $70,300 Single or HOH filers.
TCJA will substantially change the tax treatment of alimony payments for agreements or decrees entered into from January 1, 2019 forward. For agreements after this date, alimony payments will no longer be deductible and will not be taxable income to the recipient. Payments under existing decrees will continue to be deductible and taxable. This change will have a significant effect on marital dissolution planning and prenuptial agreements.
Affordable Care Act
Penalties go away in 2019, but are still in effect for 2018.
Estate Tax Exclusion
Doubled from $5.6 million to 11.18 million
This information is provided for general information only and should not be construed as specific tax advice as your situation may vary.