2018 - Tax Cuts and Jobs Act - Summary of Individual Changes

(2019 Tax Filing Season)

Individual Income Tax Rates

The individual income tax rates and bracket amounts have been modified for tax years 2018 until they sunset after 2025. The temporary tax rates are outlined here. In addition, the “kiddie tax” is simplified for tax years beginning before 2026 by applying ordinary and capital gains rates applicable to trusts and estates to the net unearned income of a child. The tax treatment of capital gains and qualified dividends remains unchanged.

Alternative Minimum Tax (AMT)

Beginning in 2018, the AMT exemption amounts are $109,400 (imarried filing separately or surviving spouse), $70,300  (single or head of household), and $54,700 (married filing separately). The phaseout thresholds are also temporarily increased after 2017 to $1 million if married filing jointly or surviving spouse and $500,000 for all other individuals. 

Estate & Gift Tax

The exclusion amount for estates of decedents dying between 2018 & 2026 will be doubled to $10 million per individual.  This amount will be indexed for inflation.

Return Filing Thresholds

Tax returns will need to be filed for 2018 once the following thresholds are met:

Single $12,000
Married Filing Separately $0
Married Filing Jointly $24,000
Head of Household

$18,000

Qualifying Widow(er) $24,000

 

 

 

 

 

Higher amounts apply to those over 65 years of age or if blind.

Tax preparers will have additional due diligence requirements imposed on paid return preparers to ensure that clients qualify for the child and education credits, and head of household status.  This should add time to the preparation of all returns.

Individual Health Insurance Mandate

Effective for years after 2018, the shared responsibility payment amount will be reduced to zero.

Standard Deduction and Personal Exemptions

The basic standard deduction amounts are increased to: $12,000 for single individuals and married individuals filing separately; $18,000 for heads of household; and $24,000 for married individuals filing jointly (including surviving spouses).  Personal exemptions will not be available from 2018 through 2025.

Itemized Deductions

Because of the effect of changes to the standard deduction and limitations on itemized deductions, the use of itemized deductions will likely be reduced for most taxpayers.  The income based limit on overall itemized deductions has been eliminated. The following is a summary of changes to itemized deductions:

  • Foreign property taxes will not be eligible for deduction;
  • State & local income tax, property tax and personal property tax are limited to $10,000 for married couples filing jointly, and $5,000 for married couples filing separately and single taxpayers. (Property taxes associated with carrying on a trade or business (such as a rental property) are fully deductible;
  • No deduction is available for interest on home equity loans;
  • Interest on acquisition debt for a home mortgage is limited to the interest on the first $750,000 of deb ($375,000 for married couples filing separately).  Again, any interest paid in connection with a trade or business or rental property are fully deductible.  If the loan was originated before December 15, 2017,the former limits of $1 Million and $500,000 of total loan will apply;
  • Medical expenses must exceed 7.5% of Adjusted Gross Income to be considered for deduction; (This will be increased to 10% of AGI for 2019)
  • Charitable donations made to public charities may be deducted up to 60% of AGI.  Deduction for college athletic seating rights is eliminated;
  • Casualty and theft loss deductions will only be permitted for federally declared disasters;
  • Deductions for gambling losses and other expenses related to gambling are limited to gambling winnings;
  • No miscellaneous itemized deductions will be permitted;
  • The overall limitation on itemized deductions will be suspended for 2018 through 2025.

Alimony and Separate Maintenance Payments

For separation agreements executed or modified after 2018, alimony and separate maintenance payments will not be deductible by the payor, nor included in income of the recipient.

Moving Expenses

The deduction for moving expenses, other than certain moves by military personnel are repealed.

Deferal of Capital Gain to Buy Small Business Investment Company

The election to defer recognition of capital gain realized on the sale of publicly traded securities if the taxpayer used the sale proceeds to purchase common stock or a partnership interest in a specialized small business investment company (SSBIC) is repealed.

Child Tax Credit

The child tax credit is expanded to $2,000 per qualifying child with phaseout thresholds of $400,000 (married filing jointly) and $200,000 (others).  There will also be a $500 nonrefundable credit for a dependent who is not a qualifying child.  The additional child tax credit, which is refundable is limited to $1,400 per child whose income does not exceed $2,500.

Passthrough Deduction for Qualified Business Income

A deduction of 20% of domestic qualified business income is available to individuals with passthrough income from a partnership, S corporation or sole proprietorship.

There is a new limitation based on wages paid plus a capital element with income above a threshold amount.

This deduction is not available to businesses which:

  • provide services in the fields of accounting, actuarial science, athletics, brokerage services, consulting, financial services, health, law, or the performing arts; or
  • that involves the performance of services consisting of investing and investment management, trading, or dealing in securities, partnership interests, or commodities; or
  • whose principal asset is the reputation or skill of one or more of its employees or owner.

Retirement Plans

Laws enacted in 2017 and 2018 make it easier to access retirement funds needed to recover from federally declared disaster areas in 2016, 2017 & 2018.  Some of these provisions:

  • Eliminate the 10% early withdrawal penalty;
  • Include a qualified hurricane distribution in income over a 3 year period;
  • Repay distributions to the plan;
  • Have expanded loan availability and an extended loan repayment period.

ABLE Accounts

A non deductible contribution may be made to an ABLE (Achieving a Better Life Experience) account for a beneficiary up to the annual gift tax exclusion ($15,000 for 2018 & 2019).  This contribution is considered a completed gift and if the balance of the ABLE account exceeds $100,000 it will be considered a resource of the beneficiary for purposes of means tested benefits.

529 Plans - K-12 Education

The new law allows up to a $10,000 distribution from a 529 Plan per beneficiary for tuition at an elementary or secondary school of the beneficiary's choosing.

This is a summary of changes affecting individual returns for 2018.  For a summary of items affecting corporation taxation, please click here.