2017 ended with a bang from a tax perspective. The Senate and House of Representatives were able to reconcile their two versions of a new tax bill, and on December 22, 2017 President Trump signed into law the biggest changes to tax in over 30 years.
Regardless of how you vote, the Tax Cuts and Jobs Act will influence what you pay in taxes for the foreseeable future. For example, the Tax Cuts and Jobs Act lowered tax rates across the board—with the exception of the lowest tax bracket, which remains at 10%. The highest tax bracket, formerly 39.6%, is now 37%.
These changes will expire at the end of 2025, and 2026 rates will revert back to what they were in 2017, assuming no new legislation addresses them between now and then.
You may as well familiarize yourself now with these 11 major changes affecting individuals (at least for the next eight years):
- You are no longer allowed to deduct interest for home equity loans/lines of credit. Now, the only allowable mortgage interest deduction is for your primary residence and only up to a maximum indebtedness of $750,000. (Note: This change only applies to new mortgages. Even if the balance of your existing mortgage is more than $750,000, it is “grandfathered” in.)
- Employees who incur unreimbursed expenses associated with their employment may no longer use an itemized deduction for them.
- If you have a 529 savings plan, you can now use distributions for private education tuition, as opposed to just post-secondary education.
- Alimony payments from post-December 31, 2018 divorce settlements are no longer tax deductible. Also, alimony received is no longer taxable.
- Self-employed individuals can now take advantage of a deduction on their self-employment income, which is subject to phase outs.
- The itemized deduction for taxes—property, state income, and sales—is now limited to a maximum of $10,000. This change primarily affects individuals who pay a large amount of state income tax or who live in high property tax states, so it isn’t as detrimental in Tennessee.
- The standard deduction is increased to $12,000 for individuals and to $24,000 for married filing jointly.
- The personal exemption, currently $4,050 per individual/dependent, is now repealed.
- The child tax credit increased from the current $1,000 per child per year to $2,000 per child per year.
- Payments made for the right to purchase athletic tickets will no longer count as a charitable deduction. (Sorry to be the bearer of bad tidings football fans!)
- The Act eliminates the deduction for moving expenses, except for members of the military.
We’ll stop at eleven. The sheer number of changes, and their implications for individuals, can be overwhelming! If you have questions about how the new tax laws will affect your personal tax return, feel free to give us a call at (865) 691-8509.