I thought I’d take this snow day as an opportunity to list some of the changes due to the new tax law. We’ve fielded a fair amount of questions, and the law is broad, I’m just covering highlights.
First, the short answer for those that don’t want to read a giant tax email, is that most people will see their taxes go down a little bit. Some high earners in high tax states might see an increase. Most estimates I’ve seen suggest that about 80-85% of people will see a small decrease.
For the one or two of you still reading at this point, the system for taxing capital gains and qualified dividends didn’t change except that the income levels at which the 15% and 20% rates apply were altered and will be adjusted for inflation after 2018. For 2018, the 15% rate will start at $77,200 for married taxpayers filing jointly, $51,700 for heads of household, and $38,600 for other individuals. The 20% rate will start at $479,000 for married taxpayers filing jointly, $452,400 for heads of household, and $425,800 for other individuals.
Standard deduction: The standard deduction through 2025 for individual taxpayers is increased to $24,000 for married taxpayers filing jointly, $18,000 for heads of household, and $12,000 for all other individuals.
Personal exemptions: All personal exemptions are repealed through 2025.
Pass-through income deduction: Talk to your CPA, that’s what I am going to have to do, I can’t wrap my head around this.
Child tax credit: Is increased to $2,000 per qualifying child. The threshold at which the credit begins to phase out was increased to $400,000 for married taxpayers filing a joint return and $200,000 for other taxpayers.
Education: 529 plans were modified to allow you to distribute up to $10,000 in expenses for tuition incurred during the tax year at an elementary or secondary school. This limitation applies on a per-student basis, rather than on a per-account basis.
Mortgage interest: The home mortgage interest deduction was modified to reduce the limit on acquisition indebtedness to $750,000 (from the prior-law limit of $1 million).
Home-equity loans: The home-equity loan interest deduction was repealed through 2025.
State and local taxes: Under the act, individuals are allowed to deduct up to $10,000 ($5,000 for married taxpayers filing separately) in state and local income or property taxes.
Charitable contributions: Increased the income-based percentage limit for charitable contributions of cash to public charities to 60%.
Miscellaneous itemized deductions: All miscellaneous itemized deductions subject to the 2% floor under current law are repealed through 2025 by the act. That includes Investment Advisory fees.
Medical expenses: The threshold for deduction of medical expenses is now 7.5% of adjusted gross income for 2017 and 2018, it had been 10%.
Alimony: For any divorce or separation agreement executed after Dec. 31, 2018, the act provides that alimony and separate maintenance payments are not deductible by the payer spouse. It repealed the provisions that provided that those payments were includible in income by the payee spouse. That date it not a typo.
Moving expenses: The moving expense deduction is repealed through 2025, except for members of the armed forces on active duty who move pursuant to a military order and incident to a permanent change of station. (We’ll have to delete our quiz question on social media where moving expenses were deductible, even if you didn’t itemize.)
Sale of a principal residence: The current rules regarding exclusion of gain from the sale of a principal residence remain in effect.
IRA re-characterizations: Taxpayers can no longer re-characterize to unwind a Roth conversion.
Estate taxes: Doubled the estate and gift tax exemption for estates of decedents dying and gifts made after Dec. 31, 2017, and before Jan. 1, 2026 to $11.2 million per individual or $22.4 million per couple, and those are indexed for inflation.
Individual AMT: For tax years beginning after Dec. 31, 2017, and beginning before Jan. 1, 2026, the AMT exemption amount increases to $109,400 for married taxpayers filing a joint return (half this amount for married taxpayers filing a separate return) and $70,300 for all other taxpayers (other than estates and trusts). The phase-out thresholds are increased to $1 million for married taxpayers filing a joint return and $500,000 for all other taxpayers (other than estates and trusts). The exemption and threshold amounts will be indexed for inflation.
I got this from various sources; I hope it is helpful to you. Please reach out with questions.
For clients: If you aren’t sure how to log on to our website or those of our custodians, or if you have any other questions, please reach out to Karen. Her email address is firstname.lastname@example.org and her direct dial phone number is 267-291-4918.
If your situation has changed materially since our last meeting or conversation, please call us so we may update our records, and make any necessary changes to your wealth management plan and/or your investments. If it has been a while since our last meeting or conversation, let’s make it a point to speak or meet soon.
Finally, thank you for continuing to work with us, and if you know someone who may benefit from our services, please make an introduction. I would greatly appreciate it.