What You Need to Know About the 2017 Tax Law Changes

On December 22, 2017 President Trump signed the Tax Cut and Jobs Act. This Act is arguably the most significant change to the Internal Revenue Code in three decades. With the potential to allow higher wages, more employment, this law reduces tax rates for individuals and corporations while also repealing many deductions, thus simplifying filing for many taxpayers.

The following will highlight some of the more notable changes taking effect after December 31, 2017.

Important Note: the Act keeps the same number of income tax brackets but will lower the tax rates, with changes evident in February 2018 withholding's. The new seven tax brackets will include tax rates of 10, 12, 22, 24, 32, 35, and 37%.

70% or so of households fail to file an itemized federal tax return. The new tax law nearly doubles a taxpayers standard deduction. The new standard in 2018 is $12,000 for individuals, $18,000 for head of households, and $24,000 for married couples filing a joint return. The 2017 deductions for individuals, head of households, and married couples filing joint returns were $6350, $9350, and $12,700 respectively.

There is a reduction in how much you can deduct of State and Local Taxes. If you happen to live in high tax state you may face a higher tax bill. The new tax law limits a households combined deduction of state and local taxes to $10,000.

The child tax credit will increase to $2,000 per qualifying child up from $1,000. Up to $1,400 of that can be a tax refund. The cutoff for income use to be around $110,000 and the cutoff has been raised closer to $400,000, a massive increase.

Deducting mortgage interest will only be allowed on mortgages of $750,000 or less. However, this will not impact a mortgage you already have in place, only those starting in the year 2018.

Home equity and lines of credit will no longer be tax deductible even if you already have them. Instead of running to pay off your loan, you may want to refinance and combine with the first loan.

This used to be only for qualified higher expenses. Now you can use from K through 12 for expenses. Using the 529 plan for younger kids could defeat the benefit of the tax deferral.

In 2018, the new limit is $11.2 million and if you’re married that limit jumps to $22.4 million. Up from $5.49 million in 2017.

A person can still convert their traditional IRA to a Roth IRA. What changed was something called a Recharacterization. Say at the beginning of 2008 you decided to convert a $100,000 traditional IRA to a Roth IRA, and at the end of the 2008 year you realize your IRA is now worth $60,000. When you file your income tax you could do what is called a Recharacterization. This essentially gives you the ability to change your mind and have a do over, changing your Roth back to a Traditional and no tax would be owed, under the guise that you follow particular rules in doing this.

Anyone will have the ability to deduct qualified medical expenses that exceed 7.5% of adjusted gross income. (This is for the years 2017 & 2018 only, then the rate will return to 10% of AGI)

Borrowers can deduct up to $2500 a year in student loan interest up to certain income limits.

Starting in 2019, alimony will no longer be tax deductible and the recipient will no longer pay taxes on money received.

There is of course much more to this new tax law, with amendments almost inevitable. So be sure to always check with your trusted tax professional.