Tax Reform Outline of Key Changes for Individuals in 2018

Tax Brackets

Single:

  • 10% (Taxable income up to $9,525)

  • 12% (Over $9,525 to $38,700)

  • 22% (Over $38,700 to $82,500)

  • 24% (Over $82,500 to $157,500)

  • 32% (Over $157,500 to $200,000)

  • 35% (Over $200,000 to $500,000)

  • 37% (Over $500,000)

Married Filing Joint:

  • 10% (Taxable income up to $19,050)

  • 12% (Over $19,050 to $77,400)

  • 22% (Over $77,400 to $165,000)

  • 24% (Over $165,000 to $315,000)

  • 32% (Over $315,000 to $400,000)

  • 35% (Over $400,000 to $600,000)

  • 37% (Over $600,000)

Head of Household:

  • 10% (Taxable income up to $13,600)

  • 12% (Over $13,600 to $51,800)

  • 22% (Over $51,800 to $82,500)

  • 24% (Over $82,500 to $157,500)

  • 32% (Over $157,500 to $200,000)

  • 35% (Over $200,000 to $500,000)

  • 37% (Over $500,000)

Standard Deduction Doubled

The bill calls for a near doubling of the standard deduction. It increased the standard deduction to $24,000 for married individuals filing a joint return, $18,000 for head-of-household filers, and $12,000 for all other individuals for tax years beginning after December 31, 2017. All increases are temporary and are scheduled to expire after December 31, 2025. The additional standard deduction for the elderly and the blind are retained.

Personal Exemptions Eliminated

There will be no more personal exemptions for the taxpayer, spouse, or any dependents.

SALT Deduction Capped at $10,000

The bill limits annual itemized deductions for all nonbusiness state and local tax deductions, including property taxes, to $10,000 ($5,000 for married filing separate). General sales taxes may be included as an alternative to claiming state and local income taxes. The Conference bill short-circuits any immediate year-end tax planning by adding a provision that disallows prepayment in 2017 of state and local income taxes imposed for a year after 2017 to avoid the new dollar limitation.

Mortgage Interest & Home Equity Loans

The principal cap on deductible home mortgage interest for new mortgages (after December 15, 2017) would be reduced immediately from $1 million to $750,000. However, if you bought a property before Dec. 15, you can still deduct the interest paid on mortgage debt up to $1 million. This includes your primary home and one other secondary residence. Home equity loan interest will no longer be deductible for anyone.

Medical Expenses

In 2017 and 2018, you can deduct out-of-pocket medical expenses that exceed 7.5% of adjusted gross income. In 2019 it will revert back to the 10% threshold for all taxpayers.

Casualty Losses

Taxpayers will still be able to claim a deduction for personal losses, but only if the loss occurred during an event that the President officially declared as a disaster.

Alimony

Payments to an ex-spouse for alimony will no longer be deductible for the payer, nor are the payments included in the recipient’s gross income. This change would take effect for divorce and separation agreements executed after December 31, 2018.

Child Tax Credit

The bill temporarily sets the child tax credit at $2,000, with the maximum refundable amount set at $1,400. It also creates a temporary $500 refundable credit for non-child dependents. The credit will begin to phase out for married couples filing a joint return with adjusted gross income in excess of $400,000 and for all other taxpayers at $200,000. The changes to the child tax credit take effect for tax years beginning after December 31, 2017 and is scheduled to expire after December 31, 2025. Child dependents must have a Social Security number to claim the refundable and nonrefundable child tax credit. Non-child dependents and any child without a Social Security number may claim the new $500 nonrefundable credit. The age limit for a qualifying child does not change.

Unreimbursed Employee and Miscellaneous Deductions

The bills calls for the elimination of these deductions in tax years beginning after December 31, 2017. These deductions include unreimbursed business expenses, union dues, uniforms and certain work clothing, professional supplies, subscriptions, job search, etc.

Taxation of Pass-Throughs

The bill provides individuals with a 20% deduction on certain pass-through income. An individual taxpayer may deduct 20% of domestic “qualified business income” (QBI) from a partnership, S corporation, or sole proprietorship, subject to certain limitations and thresholds. For taxpayers whose taxable income does not exceed $157,500 for individuals ($315,000 if married filing jointly) there are no limitations.

Above those thresholds, the amount of the deduction is limited to the greater of:

  • 50% of W-2 wages with respect to the qualified trade or business, or

  • 25% of W-2 wages plus 2.5% of the unadjusted basis immediately after acquisition of all qualified property.

W-2 wages are amounts paid with respect to employment of employees during the calendar year.

The deduction does not apply to “specified service businesses,” except for taxpayers whose taxable income does not exceed $207,500 (for individuals) or $415,000 (if married filing jointly). A “specified service business” means any trade or business activity involving the performance of services in the fields of health, law, accounting, actuarial sciences, performing arts, consulting, athletics, financial services, brokerage services, investment management, trading, dealing in securities, or any trade or business where the principal asset of such trade or business is the reputation or skill of one or more of its owners or employees. It does not include engineering or architecture trades or businesses.

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