Here's how the new tax bill will impact your taxes

Below are few major tax highlights and the impact the new tax plan may have on your 2018 tax bill. (Individual tax filers)

1. Health insurance: There is no penalty for not buying health insurance
2. Estate taxes-exempts most: Estate tax is the threshold permitted under the law that an individual can leave to their heirs and pay no federal estate or gift tax. For 2018, under the new plan – the exemption has almost doubled. The original $5.6 M set for 2018 has been now doubled to $11.2 M. As per a federal estate law provision, couples who are able to efficiently plan can double that exemption to $22.4 M. Currently, only 0.2% of all estates are subject to estate taxes. Therefore, with the new exemption limits exempts most estates.
3. Mortgage interest deduction: For first or second home mortgage, the interest deduction is now allowed for a debt of up to $750,000. Earlier interest was allowed for a debt up to $ 1M. The bill no longer allows interest deduction on home equity loans. Current law allows up to $100,000
4. Eliminates personal exemption: Currently, you are allowed to take up to $4,050 exemption for yourself, spouse or any dependents. Under the new tax plan, this exemption is no longer allowed.
5. Doubles standard deduction: For filing status single, the new bill increases to $12,000, earlier $6,350. For married filing jointly, it increases to $24,000 from 12,700.
6. New tax brackets: There are seven new tax brackets under the new tax plan.
   • 10% (income up to $9,525 for single filers; up to $19,050 for married couples filing jointly)
   • 12% (over $9,525 to $38,700 for single filers; over $19,050 to $77,400 for couples)
   • 22% (over $38,700 to $82,500 for single filers; over $77,400 to $165,000 for couples)
   • 24% (over $82,500 to $157,500 for single filers; over $165,000 to $315,000 for couples)
   • 32% (over $157,500 to $200,000 for single filers; over $315,000 to $400,000 for couples)
   • 35% (over $200,000 to $500,000 for single filers; over $400,000 to $600,000 for couples)
   • 37% (over $500,000 for single filers; over $600,000 for couples)
7. Temporary credit for non-child dependent : As per this bill, parents can take $500 credit for each non-child dependent whom they are supporting. Eg : Children 17 and over with disability.
8. Child tax credit doubled: The child tax credit is doubled to $2,000 for children under the age of 17. This credit is available to high-income earners. The income threshold for claiming full child tax credit has been increased to $200,000 for single parents (earlier $75,000) and $400,000 married couples (earlier $110,000).
9. State and local tax (SALT) including property taxes: This has been capped at $10,000 for 2018 i.e this is the maximum allowed to claim in 2018.
10. Alternative Minimum Tax:   The final version of the bill retains alternate minimum tax. AMT tax exemptions have been increased.  For Single filers- New exemption limit $70,300 increased from current $ 54,300. Married couples -New exemption limit $109,400 increased from $84,500.  (AMT is a supplemental income tax imposed by the federal government. Regular taxable income is adjusted for certain items that may be eliminated  /computed differently for calculation of AMT eg: Property taxes, medical expenses, depreciation etc).
11. 529 plans: No major changes relating to 529 plans. 529 plan savings can be used to pay for college expenses of up to $10,000 per year. This should only be used for qualified education expenses. They can now be used for K-12 and homeschool expenses.
12. 401k plans No major changes despite earlier discussions of eliminating pre-tax deductions in 401k.
    1. 401k loans– Previously, if you left a job with a 401k loan pending, you had to repay it immediately or face penalties. Under the new regulation, you have up to 60 days to repay the 401k loan without facing penalties
13. Medical expenses: You can still deduct expenses that exceed 7.5% of Adjusted Gross income in 2017 and 2018. This returns back to 10% thereafter.
14. Charitable contribution deductions : No change.
15. Student loan deduction: No change. Under current rules, you can claim up to $2,500 as student loan deduction.

 

 

Note: This bill will not impact your 2017 taxes

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