2018 Tax Changes

2018 Tax Changes


Many of you are probably still digesting the new tax changes and how it may affect you.  It’s a lot of information to process but Exact Tax would like to highlight the changes that will affect most tax payers.

1.     Purchasing or Selling Your Home

Until 2017 Homeowners could deduct the interest on a mortgage of up to $1,000,000, or $500,000 for married taxpayers filing separately.  Under the new law, anyone who takes out a mortgage between December 15, 2017 and December 31, 2025 can only deduct interest on a mortgage of up to $750,000 or $375,000 for married taxpayers filing separately.

In 2018, the new tax law eliminates home equity loans.

According to the National Association of Realtors, lower mortgage interest deductions could cause home prices to fall.  Zillow estimates only 14% of Homeowners, down from 44% will deduct mortgage interest in 2018 under the new tax law.

2.     Standard Deductions

The Standard Deduction has increased from $6,350 to $12,000 for individuals and for married couples filing separately. For heads of household, from $9,350 to $18,000 and for married couples filing jointly, from $12,700 to $24,000.

Many households will now take the standard deductions instead of itemizing using Schedule A.  The Joint Committee on Taxation estimates that 94 percent of taxpayers will claim the standard deduction starting in 2018, While this may simplify the record keeping, charitable contributions will no longer be tax deductible for many because they won’t itemize.

  • Casualty and Theft Losses - no longer tax deductible unless they are related to a loss in a federally declared disaster area. 
     
  • State and local taxes Taxpayers can deduct a maximum of $10,000 in state and local income taxes or sales taxes, plus property taxes, (L2) a measure that might hurt itemizers in high-tax states such as California, New York and New Jersey. The $10,000 cap applies whether you are single or married filing jointly; if you are married filing separately, it goes down to $5,000. 

Eliminated Miscellaneous DeductionsTaxpayers lose the ability to deduct the cost of tax preparation, investment fees, bike commuting ($20/month) unreimbursed job expenses and moving expenses. can no longer be itemized. 

3.     Personal Exemption

For 2017, the exemption amount is $4,050 each for individuals, spouses and dependents, including children. This amount is not subject to any income tax. It lowers your taxable income.

In 2018, that exemption goes away. The exemption’s elimination might actually offset the doubling of the standard deduction for families since (L3) deductions and exemptions both reduce your taxable income.

Some examples comparing 2017 and 2018: 

You're Single, with No Children

  • Standard deduction increases from $6,350 to $12,000.
  • Personal exemptions decrease from $4,050 to $0.
  • 2017 tax deduction: $10,400.
  • 2018 tax deduction: $12,000.
  • Increased deduction: $1600

You're Married Filing Jointly, with No Children

  • Standard deduction increases from $12,700 to $24,000.
  • Personal exemptions decrease from $8,100 to $0.
  • 2017 combined tax deduction: $21,100.
  • 2018 single tax deduction: $24,000.
  • Increased deduction: $2900

You're Married Filing Jointly, with Two Children

  • Standard deduction increases from $12,700 to $24,000.
  • Personal exemptions decrease from $16,200 to $0.
  • 2017 combined tax deduction: $28,900.
  • 2018 single tax deduction: $24,000.
  • Decreased tax deduction: $4900

4.      Private Schools

In 2018 parents who have children in private, religious, elementary or secondary schools (K-12) can deduct up to $10,000 under the 529s plan.  This excludes homeschooling.

 

 

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