What to Know About the New Tax Law
More than a year has passed since the Tax Cuts and Jobs Act (TCJA) was signed into law and the first tax season since these changes went into effect is right around the corner. Here are some of the more significant changes that will affect your 2018 taxes.
The number of tax brackets will remain at seven but, five of those brackets will have lower rates. Many people will benefit from the new lower rates but, some people who were in the 33% bracket in 2017 could find themselves in the 35% bracket this year. The TCJA also doubled the standard deduction amounts for 2018 and removed the personal and dependent exemption deduction. The new standard deductions are $24,000 for married joint-filing couples ($12,000 for single or married filing separately) and $18,000 for heads of households. Additionally, the TCJA doubled the maximum child credit to $2,000 per qualifying child and introduced a new $500 tax credit for qualified dependents who are not under-age-17 children.
Also in 2018, the TCJA will limit your deduction for state and local income and property taxes to a total of $10,000, or $5,000 if you use married filing separate status. For mortgages taken out after December 15, 2017, the TCJA reduces the maximum amount of mortgage debt used to acquire a first or second residence for which you can claim itemized interest expense deductions. The new debt limit is $750,000, or $375,000 if you use married filing separate status. The previous deb limits of $1 million or $500,000 will still apply to mortgages that were taken prior to December 15, 2017 and then refinanced after the TCJA took effect, as long at the refinanced loan principal does not exceed the old loan balance at the time of the refinancing. Finally, the TCJA disallows 2018 interest deductions for most home equity loans which you can read more about here.