Congress Passes Final Tax Reform Bill (TCJA) – Here Are The Key Changes for Individuals

Here is a quick rundown of some of the key changes affecting individual taxpayers. Except where noted, these changes are effective for tax years beginning after December 31, 2017. Be sure to consult your tax professional for your specific situation.

DS+B Team December 20, 2017

On December 20th, Congress has passed the most sweeping tax legislation since the Tax Reform Act of 1986. The House passed the Tax Cuts and Jobs Act of 2017 (TCJA), which the Senate had passed the previous day. The bill makes small reductions to income tax rates for most individual tax brackets, significantly reduces the income tax rate for corporations and eliminates the corporate alternative minimum tax (AMT).

It’s not all good news for taxpayers, however. The TCJA also eliminates or limits many tax breaks, and much of the tax relief is only temporary.

Here is a quick rundown of some of the key changes affecting individual taxpayers. Except where noted, these changes are effective for tax years beginning after December 31, 2017. Be sure to consult your tax professional for your specific situation.



Key changes affecting individuals:

 

Changes to Income Tax Brackets
  • Reductions to the individual income tax rates ranging from 0 to 4 percentage points (depending on the bracket) to: 10%, 12%, 22%, 24%, 32%, 35% and 37%  — through 2025 
Increased Deduction or Exemption Limits
  • Near doubling of the standard deduction to $24,000 (married couples filing jointly), $18,000 (heads of households), and $12,000 (singles and married couples filing separately) — through 2025

 

  • Doubling of the child tax credit to $2,000 and other modifications intended to help more taxpayers benefit from the credit — through 2025

 

  • Expansion of tax-free Section 529 plan distributions to include those used to pay qualifying elementary and secondary school expenses, up to $10,000 per student per tax year

 

  • AMT exemption increase, to $109,400 for joint filers, $70,300 for singles and heads of households, and $54,700 for separate filers — through 2025

 

  • Doubling of the gift and estate tax exemptions, to $10 million (expected to be $11.2 million for 2018 with inflation indexing) — through 2025
Reduced or Limited Deductions
  • New $10,000 limit on the deduction for state and local taxes (on a combined basis for property and income taxes; $5,000 for separate filers) — through 2025

 

  • Reduction of the adjusted gross income (AGI) threshold for the medical expense deduction to 7.5% for regular and AMT purposes —  for 2017 and 2018

 

  • Reduction to the mortgage debt limit for the home mortgage interest deduction, to $750,000 ($375,000 for separate filers), with certain exceptions — through 2025
Eliminations and Repeals
  • Elimination of personal exemptions — through 2025

 

  • Elimination of the individual mandate under the Affordable Care Act requiring taxpayers not covered by a qualifying health plan to pay a penalty — effective for months beginning after December 31, 2018. The IRS has cautioned that for tax year 2017, under current law, it will not consider a return complete if the tax payer does not report full-year coverage, claim an exemption, or report shared responsibility.

 

  • Elimination of the deduction for interest on home equity debt — through 2025.

 

  • Elimination of the personal casualty and theft loss deduction (with an exception for federally declared disasters— through 2025

 

  • Elimination of miscellaneous itemized deductions subject to the 2% floor (such as certain investment expenses, professional fees and unreimbursed employee business expenses) — through 2025

 

  • Elimination of the AGI-based reduction of certain itemized deductions — through 2025

 

  • Elimination of the moving expense deduction (with an exception for members of the military in certain circumstances) — through 2025

Year-end planning opportunities still available

We’ve only briefly covered some of the most significant TCJA provisions here – and there will be more information from DS+B in the weeks ahead.

Also keep in mind that, as a result of the TCJA, you may have some last-minute year-end 2017 tax planning opportunities — but quick action (before January 1, 2018) will be needed.

If you have questions about what you can do before year end to maximize your savings, or you’d like to learn more about how these and other tax law changes will affect you in 2018 and beyond, please contact us. Keep in mind, there are additional rules and limits that apply, and the law includes many additional provisions – so always consult your tax advisor before taking action.