Quick Tax Law Update – Individual Changes in 2018

December 28, 2017
By S. John Kelly
Posted in Business Services

Temporary Reduction in Tax Rates

Until 2025, marginal tax rates drop by 2% or 3% for each bracket.

Standard Deduction Increases:

$6,500 for single filer increases to $12,000, increase ends in 2025

$9,550 for head of household increases to $18,000, increase ends in 2025

$13,000 for joint filer increases to $24,000, increase ends in 2025

Capital Gains Rates – Generally unchanged.

Personal Exemptions – $4,150 per Dependent deduction Eliminated

A child tax credit increase partially offsets this lost deduction.  However, the child tax credit is not available for older children (age 17 and older).

Alimony Deductions – Eliminated in 2019.

Alimony agreements signed by 12/31/2018 are not affected.

Moving Deductions – Eliminated in 2018

Deductions on Schedule A – Reduced or Eliminated

Medical expense – floor on medical deductions for 2018 is reduced to 7.5% of AGI, reverts to 10% of AGI in 2019.

Taxes – Maximum ceiling on tax deductions (state and local income taxes and real estate taxes) is limited to $10,000 in 2018.  Note – interaction with the Alternative Minimum Tax may reduce the pain of this.  Note – you cannot prepay 2018 taxes in 2017 to avoid this rule.

Mortgage Interest – Deduction for home equity loan interest is eliminated.  Principal on mortgage debt is limited to $750,000 on mortgages used to purchase first and second homes (joint returns).   Pre-December 16, 2017, first and second home mortgages retain current $1M cap.

Charitable Gifts – Generally, unchanged.

Many miscellaneous deductions – Eliminated.

E.g., investment advice, tax return fees, safe deposit boxes, tax advice, casualty loss

Health Care

Penalty tax for failure to buy health insurance – Ends in 2019

3.8% Net Investment Tax on dividends and capital gains, and Medicare Tax – Remain in place

Retirement Plans – Generally Unchanged

Current rules for pensions, IRA, and 401(k) plans unchanged. However, taxpayers cannot recharacterize Roth contributions as normal IRA contributions.

Strassburger McKenna Gutnick & Gefsky can help you with your income tax planning.  Please contact John Kelly, jkelly@smgglaw.com  or Dave Pollack, dpollack@smgglaw.com  at (412) 281-5423 for help with tax matters.

This post is provided for informational purposes only. Nothing in this post creates an attorney client relationship.  Many of the rules shown above have complicated exceptions that are not discussed.