Congress passed the “Tax Cuts and Jobs Act” last week. The President signed the legislation on Friday, December 22, 2017. The legislation can be found on the House Ways and Means website.

Here is a brief review of the changes that will affect individual taxpayers:

Income Tax Rates
There will be seven income tax brackets: 10%, 12%, 22%, 24%, 32%, 35%, and 37%. The income levels associated with these rates will be adjust for inflation, based on chained CPI.

Source: freedomworks.org

Standard Deduction
The Act raises the standard deduction from $6,350 to $12,000 for individuals, and from $12,700 to $24,000 for married couples filing jointly.

Personal and Dependent Exemption
The personal and dependent exemption (currently $4,500) have been eliminated.

Child Tax Credit
The child tax credit will increase from $1,000 to $2,000 for a child under age 17. Also, the income level at which the credit phases out will increase from $75,000 to $200,000 for single parents, and from $110,000 to $400,000 for married parents.

The refundable portion of the child tax credit increases from $1,000 to $1,400. Taxpayers who do not owe tax can still claim a tax credit of up to $1,400.

Non-Child Dependent Tax Credits
The Act creates a $500 non-refundable credit for dependents who do not qualify for the child tax credit. Taxpayers can claim this credit for children over the age of 17, and for non-child dependents.

State and Local Tax Deductions
Taxpayers will be able to deduct state and local taxes and real property taxes up to $10,000 (married filing jointly).

Mortgage Interest
Taxpayers will be able to deduct the interest on new mortgages of up to $750,000 (married filing jointly). If a mortgage was taken out before December 15, 2017, taxpayers can deduct mortgage interest on the loan up to $1,000,000 (married filing jointly). Interest on home equity loans will no longer be deductible.

Employee Business Expense Deduction
Eliminated.

Tax Preparation Fee Deduction
Eliminated.

Investment Interest Expense Deduction
Eliminated.

Investment Advisor Fee Deduction
Eliminated.

Personal Casualty and Theft Losses Deduction
Eliminated.

Charitable Contributions

The deduction has been increased from 50% to 60% of adjusted gross income.

Gambling Losses
These losses remain deductible, but only to the extent of winnings.

Medical Expenses
In 2018 taxpayers may deduct medical expenses to the extent they exceed 7.5% of adjusted gross income. In 209, the threshold increases to 10% of adjusted gross income.

Alimony
The deduction for alimony payments has been eliminated for orders effective after December 31, 2018. Similarly, recipients will no longer be required to report alimony as income. The tax treatment of payments under existing orders is unchanged.

Moving Expenses
Not deductible.

Educator Expenses

Educators (kindergarten – 12th grade) may continue to deduct up to $250 per year for unreimbursed classroom supplies.

Student Loan Interest
Interest of up to $2,500 on student loans can be deducted.

Health Savings Accounts
No change.

IRAs
It will no longer be possible to re-characterize Roth IRA contributions as traditional IRA contributions.

Deductions for Self-Employed Taxpayers

These taxpayers may continue to deduct self-employment taxes, health insurance and qualified retirement plan contributions.

Alternative Minimum Tax
The exemption to the AMT increases from $86,200 to $109,400 for those married filing jointly.

529 Saving Plans
The 529 has been expanded and may be used for tuition for students in kindergarten – 12th grade, private schools, and for homeschooling expenses.

Estate Tax
The exemption has been doubled to $11 million per person. It will be indexed for inflation.

Employer-Sponsored Retirement Plans
No changes.

This summary is not intended to provide tax advice. Please consult with your personal tax advisor.

Sources:
H&R Block
FreedomWorks
Tax Foundation
The Wall Street Journal

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