The New Tax Legislation

Michael Wiener, E.A.

The Tax Cuts and Jobs Act (H.R. 1) has passed, mainly starting in 2018, and if you are confused by how this new law will impact you, you’re not alone.

So that you have an idea about how these changes might affect individual taxpayers like yourself, I have assembled some of the key points of the new law.

PERSONAL EXEMPTIONS – In the past you were able to deduct a personal exemption amount for yourself, your spouse (if married filing jointly), and anyone who you could claim as a dependent. For 2016 and 2017, that amount is $4,050. Under the new law, the deduction for exemptions has been eliminated.

STANDARD DEDUCTIONS -Taxpayers can take a standard deduction or itemize their deductions if the itemized deductions provide a larger deduction. Under the new tax law, the standard deduction amounts are almost doubled, and the itemized deductions allowed have been scaled back. The chart below illustrates the standard deductions by filing status for 2017 and the amounts under the new law for 2018.

FILING STATUS 2017 2018Single & Married Separate $6,350 $12,000Head of Household $9,350 $18,000Married Filing Jointly $12,700 $24,000Add’l – Elderly & Blind: Joint & Surviving Spouse $1,250 $1,300Others $1,550 $1,600

ITEMIZED DEDUCTIONS – Before this change in law, taxpayers were generally able to deduct medical expenses above a percentage of their income, various state and local taxes paid, home mortgage interest, charitable contributions, casualty losses, gambling losses to the extent of gambling winnings, and, if the total of the category was greater than 2 percent of their income, employee and investment expenses plus other infrequently encountered deductions. The following will look at the changes to these deductions made by the new law.

MEDICAL DEDUCTIONS – Individuals can still deduct their medical expenses to the extent they exceed a percentage of their income AGI. This income limit has been reduced from 10 percent to 7.5 percent of AGI for years 2017 and 2018 and returns to 10 percent in 2019.

TAXES – Prior to the change in law, taxpayers could deduct state and local income taxes, or sales tax if larger, real property taxes, and certain personal property taxes. Under the new law, these taxes are still deductible, but the overall tax deduction is limited to $10,000. State income tax represented a very large deduction for many residents of states with high state income taxes, and modifying the deduction was a big bone of contention, as it was being debated in Congress.

HOME MORTGAGE INTEREST – Under the old tax law, a taxpayer could deduct the interest on up to $1 million of acquisition debt for the purchase of the taxpayer’s first and second homes. In addition, taxpayers could deduct the interest on up to $100,000 of home equity debt. The new law reduces the $1 million limit on home acquisition debt to $750,000 ($375,000 for married separate filers) for first and second homes, except the lower limit won’t apply to indebtedness incurred before December 15, 2017. That is, the $1million cap continues to apply to acquisition mortgages on a primary and second residence already in existence prior to December 15,2017. However, starting with 2018 returns, the new law does not permit a deduction for any equity debt, which can have an adverse impact on individuals who have used their home equity to pay for costs of tuition, travel, cars, and other purposes.

DONATIONS TO CHARITIES – The new law continues to allow a deduction for charity contributions and even raises the general 50percent of income (AGI) limit on charity deductions to 60 percent.

CASUALTY AND THEFT LOSSES – Under the new tax law, no personal casualty losses will be allowed except those incurred in a federally declared disaster area.

JOB EXPENSES AND CERTAIN MISCELLANEOUS DEDUCTIONS – This category is no longer deductible under the new tax law.

OVERALL LIMIT ON ITEMIZED DEDUCTIONS – The new law suspends from 2018 through 2025 the rule requiring higher-income taxpayers to phase out their total itemized deductions once their AGI exceeds certain threshold amounts. There are many more changes in the Tax Law that will be explained in later issues. Please call me at 239.403.4410 with any further questions or email Michael@mwtaxandaccounting.com.

If you should have a topic that you would like me to discuss or if you should have a question, please feel free to call 239.403.4410 or e-mail me at michael@mwtaxandaccounting.com.

4280 East Tamiami Trail Executive Suite 302-M | Naples, FL 34112

An enrolled agent, licensed by the US Department of the Treasury to represent taxpayers before the IRS for audits, collections and appeals. To attain the enrolled agent designation, candidates must demonstrate expertise in taxation, fulfill continuing education credits and adhere to a stringent code of ethics.