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Understanding the New Tax Law

| March 07, 2018
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The new tax bill has passed into law and there will be some major changes taking place for 2018. We’ve lost some deductions, gained others, and certain provisions have become significantly different. With all these changes, it can be a bit confusing trying to figure out how much your taxes will actually cost.  Here is a quick look at the top points you need to understand about the new tax law.

 What we lost

  • Marriage penalty (mostly)
  • Health insurance penalty (in 2019)
  • Personal exemptions
  • Itemizing
  • Deductions for moving expenses, tax preparation, losses due to casualty and theft (except federally declared disasters)

 What we gained

  • Increased standard deduction
  • Increased Child Tax Credit (under 17)
  • $500 Temporary credit for non-child dependents
  • Medical expenses deductible if exceeds 7.5 % of income vs. 10%
  • Contributions increased by $500 for certain retirement plans - 410(K), 403(b), most 457 plans, and Thrift Savings Plan

What stayed the same

  • Child and Dependent Care Credit
  • Lifetime Learning Credit
  • Student Loan Interest deduction 

What changed

  • SALT (state and local taxes) deduction limited to $10,000
  • Mortgage interest deductible limit lowered from 1.1 million to $750,000
  • Home equity debt not deductible

 

New personal tax brackets

There are still seven tax brackets, but the brackets have been changed and tax rates have been lowered.

 

Single

Standard deduction increases from $6,500 to $12,000

Alternative minimum tax (AMT) exemption increases from $54,300 to $70,300

Estate tax lifetime exemption increases to $11.2 million

 

Head of Household

Standard deduction increases from $9,550 to $18,000

Alternative minimum tax (AMT) exemption increases from $54,300 to $70,300

Estate tax lifetime exemption increases to $11.2 million

 

Married Filing Jointly

Standard deduction increases from $13,000 to $24,000

Alternative minimum tax (AMT) exemption increases from $84,500 to $109,400

Estate tax lifetime exemption increases to $22.4 million

 

Married Filing Separately

Standard deduction increases from $6,500 to $12,000

Alternative minimum tax (AMT) exemption increases from $42,250 to $54,700

Estate tax lifetime exemption increases to $22.4 million

Income limits for IRAs

Income phase-out limits have been raised for savers contributing individual retirement accounts, depending on coverage by workplace retirement plans

Sources:

https://www.congress.gov/bill/115th-congress/house-bill/1/text

http://money.cnn.com/2017/12/20/news/economy/republican-tax-reform-everything-you-need-to-know/index.html

https://www.fool.com/taxes/2017/12/29/your-complete-guide-to-the-2018-tax-changes.aspx

https://www.forbes.com/sites/robertberger/2017/12/17/the-new-2018-federal-income-tax-brackets-rates/

https://www.cnbc.com/2018/02/16/10-tax-changes-you-need-to-know-for-2018.html

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