Trumps tax reforms will not be in affect for the 2017 tax year; they will only be applied to future tax returns. If you have questions about how these changes will impact on your tax returns in the future, please speak to one of our certified public accountants in Provo.
Standard Deductions
Under the old law, standard deduction amounts for 2018 would have been: $6,500 for single individuals or married individuals filing separately, $9,550 for heads of household, and $13,000 for married individuals filing jointly.
With the new changes to the tax law, the standard deductions for 2018 through 2025 will be as follows: $24,000 for married individuals filing jointly, $18,000 for heads of household, and $12,000 for all other tax payers. This will be adjusted for inflation after 2018.
Personal Exemptions
Through 2017, taxable income was calculated by subtracting personal exemption deductions from a taxpayer’s adjusted gross income. Exemptions were typically permitted for the taxpayer, as well as their spouse and any dependents. Under the old tax law, the scheduled amount that could be exempted was to be $4,150 per individual on the return.
Beginning January 1, 2018, deductions for personal exemptions have been suspended by reducing the permitted exemption amount to zero.
State and Local Tax Deductions
Under pre-Act law, taxpayers were able to deduct all state, personal, real estate, and sales tax as deductions on their federal returns, with no cap.
Beginning in 2018, taxpayers may only claim up to $10,000 in state and local tax deductions.
Mortgage and Home Equity Interest Deductions
In 2017 and prior tax years, taxpayers could include mortgage or home equity interest on a primary or qualified secondary residence as an itemized tax deduction. This applied to mortgage loans with up to $1 million in debt, or $500,000 in debt for a married individual filing a separate return; as well as home equity debts of up to $100,000.
For tax years 2018 through 2025, interest on home equity debts no longer qualify for a deduction. Deductions for mortgage interest are limited to an underlying debt of up to $750,000 or $375,000 for married individuals filing separately. The lower limits do not apply to mortgages or home equity loans acquired prior to December 15, 2017. After 2025, the previous $1 million/$500,000 limitations will be restored, regardless of when the mortgage or home equity debt was acquired.
Medical Expense Deductions
Deductions are permitted for medical expenses paid during the tax year, so long as those expenses were not reimbursed by insurance. These medical expenses could be for the taxpayer, their spouse, and/or any of their dependents. Prior to the tax reform, all medical expenses exceeding 10% of the taxpayer’s adjusted gross income were deductible as itemized deductions. This threshold was lowered to 7.5% of the taxpayer’s income if the taxpayer or their spouse reached age 65 before the end of the tax year.
Under the new tax law, for the 2017 and 2018 tax year, the threshold for medical expense deductions is reduced to 7.5% of income for all taxpayers.
Miscellaneous Itemized Deductions
Under pre-Act law, taxpayers could deduct certain miscellaneous itemized deductions, so long as those deductions exceeded, in total, more than 2% of the taxpayer’s income.
For tax years 2018 through 2025, miscellaneous itemized deductions are suspended altogether.
Again, note that these laws do not affect your current tax filings. However, if you have questions regarding these tax law changes or your current tax return, please reach out to us to speak to one of our certified public accountants in Provo.