January 04, 2018
Unless you were completely tuned out at the end of last year, you know that Congress passed a controversial bill that upends all sorts of tax laws. Controversial because the biggest benefits go to corporations and the very wealthy, while the impact for most Americans is a mixed bag.
Here are the provisions that could impact your household:
Higher Standard Deduction. If you’re among the 70 percent or so of households that do not file an itemized federal tax return, the new tax bill nearly doubles your standard deduction. This year, the standard deduction is $12,000 for an individual, $18,000 for a head of household and $24,000 for married couples filing a joint tax return. That may reduce the federal tax bill for many of you, but not all…
Reduction in Deductibility of State and Local Taxes. Residents of states with high income taxes, especially homeowners with sizable property tax bills may face a higher tax bill. The new tax bill limits a household’s combined deduction of state and local taxes (income, sales, and property) to $10,000. Regardless of whether you are single or married.
Homeownership Gets Hit. Deducting mortgage interest will only be allowed on mortgages of $750,000 or less. In the past, mortgages of $1 million were eligible for interest deductibility. And for those of you with a Home Equity Loan or Home Equity Line of Credit: the interest is no longer deductible, no matter what you use the money for.
Bigger Child Tax Credit. The child tax credit will be $2,000 per child, up from $1,000. And up to $1,400 of that can be a tax refund (for filers who don’t have a tax bill that offsets the value of the credit), compared to $1,000 under the old law. The income limits to claim the credit are also increasing, but at the same time, the new bill gets rid of personal exemptions. Last year you could claim a $4,050 personal exemption for each child (and yourself). No more. So even after factoring in the higher standard deduction, families with multiple children could face a higher tax bill.
Medical Expense Deduction. This was quite the political football. At one point, it was at risk of disappearing. The medical expense deduction has been saved, and even rolled back to provide more help for households with high medical expenses. Anyone will be allowed to deduct qualified medical expenses that exceed 7.5% of adjusted gross income. That an improvement for filers under age 65 who have had to meet a 10% threshold since 2013. Be aware: this provision is only in place for 2017 and 2018, at which point it will return to 10% of AGI.
Student Loan Interest Deduction. This too, was on the chopping block, but the final version of the tax bill allows borrowers to deduct up to $2,500 a year in student loan interest, up to certain income limits.
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