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Tax Cuts and Jobs Act Individual Tax Changes (2018 Tax Reform)

The Tax Cuts and Jobs Act (new law) has made some major changes to individual tax law. Unlike the business changes, many of the individual ones were not made permanent and will revert back for the 2026 tax return.

The Good:

  • Tax rate changes - the maximum individual rate has been reduced to 37%

  • Standard deduction increases - the standard deduction is almost double (Single/MFS now $12,000 previously $6,350, MFJ/Surviving Spouse $24,000 vs $12,700, and Head of Household $18,000 vs $9,350)

  • The Alternative Minimum Tax (AMT) threshold has increased to $109,400 for joint filers and $70,300 for all other taxpayers (not including trusts and estates)

  • New Dependent Credit and increased Child Tax Credit (CTC) - Each non-child dependent can now receive a new credit of $500. The CTC increased for each child to $2,000 (of which up to $1,400 is refundable per child). The phase-out for these credits were also increased, married taxpayers filing a joint return (MFJ) will get the full credit if their AGI is $400,000 or less, all other taxpayers have an AGI limit of $200,000. The credits are fully phased out for MFJ with an AGI of $440,000 and AGI of $240,000 for everyone else. Many more taxpayers will be eligible for these credits due to the change.

  • Up to $10,000 per year may be distributed from a section 529 (education savings plan) accounts and used for K–12 education

  • Charitable donations increased to 60% (previously 50%), however, because of the increased standard deduction Charitable Organizations may be hard hit by this new law.

  • The estate tax exclusion has increased to $11,200,000 million for 2018

  • The annual gift tax exclusion has increased to $15,000 for 2018

The Bad:

  • The personal exemption has been eliminated – if you previously claimed an exemption for yourself, your spouse, or your dependents that is now gone. If you had high enough income, this might have already been phased out for you.

  • You will no longer be able to deduct the following itemized deductions:

o Any State income tax and property taxes above $10,000 per year in total.

o Unreimbursed employee business expenses such as mileage/travel, entertainment, home office expenses, and union dues

o All other miscellaneous deductions currently subject to the 2% of adjusted gross income limit (tax preparation fees, investment advisory fees, safe deposit fees, etc).

o Mortgage interest beyond interest on $750,000 of acquisition debt, if you purchase a new home (existing acquisition debt is grandfathered. Grandfathered acquisition debt that is refinanced debt also maintains the $1 million limitation)

o Mortgage interest paid on equity debt (HELOC) if used for personal living expenses*.

  • You will no longer be able to deduct the following:

o Moving expenses (with an exception for certain military).

o Alimony for new marital settlement agreements entered into after December 31, 2018 (it will also not need to be included in the recipient’s income).

o Casualty losses (except in the case of a Presidentially declared disaster).

The Complex:

Small business deduction - one of the biggest and probably the most complicated addition to the tax law is the new deduction for qualified business income from “pass-through entities.” If you are self-employed, have a partnership, LLC, or S corporation, or you have rental income, you should seek out a qualified CPA to plan your income and deductions to maximize this new 20% deduction.

This is not an exhaustive list of the changes, so you will want to speak with a knowledgeable CPA or tax preparer. If you want to read the full text of the new law click here.

If you want to see updates from the IRS you can click here.

*The IRS issued an update to the deductibility of HELOC interest which can be found here

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