In December, Congress passed the Tax Cuts and Jobs Act (TCJA) and you may be wondering how your taxes will be affected. I’ve included some highlights from the Kiplinger Tax Letter below. If you have specific questions, please reach out to us at 310.540.2358 or firstname.lastname@example.org.
- Let’s start with individual taxes. Standard deductions nearly double to $24,000 for couples, $12,000 for singles and $18,000 for household heads. Folks age 65 or up and blind people get $1,250 more per person ($1,550 if unmarried). Given these much higher amounts, it’s a sure bet that far fewer people will itemize.
- The new law pares back or axes many deductions claimed by individuals. Personal exemptions for individual filers and their dependents are repealed. Home mortgages are nicked. Interest can be deducted on up to $750,000 of new acquisition debt on a primary and second residence…down from $1 million. The new limit generally applies to mortgage debt incurred after Dec. 14, 2017. Older loans…and refinancings up to the old loan amount…get the $1-million cap. No write-off is allowed after 2017 for interest on existing or new home equity loans.
- The popular deduction for state and local taxes is being squeezed. You can deduct any combination of residential property taxes and income or sales taxes up to a $10,000 cap. Property taxes remain fully deductible for taxpayers in a business or for-profit activity, so taxes paid on rental realty can be taken in full on Schedule E.
- Several other write-offs are eliminated: Deductions for job-related moves, except for the military. All miscellaneous write-offs subject to the 2%-of-AGI threshold, including employee business expenses, brokerage and IRA fees, hobby expenses and tax return preparation costs. Theft losses. Alimony for post-2018 divorce decrees, although it’s good news to recipients, who will not be taxed on alimony they receive. Plus personal casualty losses, excluding those in presidentially declared disaster areas.
- Tax rates on long-term capital gains and qualified dividends do not change. Currently, your capital gains and dividends rate depends on your tax bracket. But with the bracket changes, Congress decided to set income thresholds instead. The 0% rate will continue to apply for taxpayers with taxable income under $38,600 on single-filed returns and $77,200 on joint returns. The 20% rate starts at $425,800 for singles and $479,000 for joint filers. The 15% rate applies for filers with incomes between those break points. The 3.8% surtax on net investment income remains, kicking in for single people with modified AGI over $200,000…$250,000 for marrieds.
- Many individual owners of pass-throughs will get a new 20% deduction. The rules cover sole proprietors and owners of S corporations, partnerships and LLCs. REIT shareholders and partners in publicly traded partnerships also get the break. They can generally deduct 20% of so-called qualified business income. These provisions are, however, some of the most complex in the new law. There are lots of limits and restrictions to help deter gaming of the tax system. The break phases out for high earners in professional service fields, such as law, consulting, accounting, health or financial services, with taxable incomes in excess of $315,000 for joint returns and $157,500 for all other taxpayers.