New Tax Law Explained

By LES MEGYERI

The Tax Cuts and Jobs Act which was passed on December 20, 2017 made some sweeping changes to the tax law. Unfortunately, the promised postcard for paying taxes is not a reality. In fact, as one of my tax accountant friends noted, the new tax law should be called “The AccountantsRetirement Act of 2017” because of its complexity. Fortunately, taxpayers do not have to struggle with the new law until the end of 2018.

Here are some of the most important changes:

1. There are seven rates taxing income that range from 10 to 37 percent. The system for taxing capital gains and qualified dividends does not change except for a few exceptions.
2. The Act essentially doubled the standard deduction while eliminating the personal exemption. The standard deduction will be $24,000 for married taxpayers filing jointly, $18,000 for heads of households and $12,000
for single filers.
3. The mortgage interest deduction was reduced. Current homeowners aren’t affected, but those buying a new home will only be able to deduct the first $750,000 of their mortgage debt.
4. The home-equity loan interest deduction is repealed.
5. A controversial cap is the $10,000 limit on deduction for state and local taxes including real estate taxes. This affects those living in states with high taxes.
6. Previously, most casualty losses not reimbursed by insurance were deductible. Under the new law, the President has to declare a disaster for the casualty loss to
be deductible so things such as a random house fire would not qualify.
7. Medical expense deductions survived and will be increased by reducing the threshold to 7.5 percent of adjusted gross income for 2017 and 2018.
8. Alimony payments are not deductible after December 31, 2018. However, the
spouse who receives the payment does not have to declare the income.
9. The Act doubles the estate and gift tax exemptions so only estates above $11.2 million are subject to taxation.
10. The alternative minimum tax calculations remain but the number of tax filers subject to this tax will drop by 96 percent.
11. One of the most controversial provisions is the repeal of the individual mandate imposed on taxpayers who do not obtain health insurance.
12. Charitable contributions remain for those who itemize and the current limitation of 50 percent of income is increased to 60 percent.
13. There’s a new $500 temporary tax credit for elderly dependents or adult children with a disability.

Les Megyeri is a retired lawyer and CPA who lives in Washington, D.C. and Venice.

 

 

LEAVE A REPLY

Please enter your comment!
Please enter your name here