5 MIN READ
The Tax Cuts and Jobs Act (TCJA)—the largest piece of tax reform legislation in more than 30 years—went into effect on January 1, 2018, enacting sweeping changes that will affect the taxes of most taxpayers for the 2018 tax year.
Below are the 10 most notable changes from the 2018 tax reform that could affect your tax return this year.
#1. Standard Deductions Increased Across the BoardThe TCJA almost doubled the standard deduction amounts for 2018.
- Single and married filing separately: $12,000 (versus $6,350 in 2017)
- Married Filing Jointly: $24,000 (versus $12,700 in 2017)
- Head of Household: $18,000 (versus $9,350 in 2017)
#2. Personal and Dependent Exemptions Eliminated
While the TCJA nearly doubled the standard deduction amounts for 2018, it also eliminated personal and dependent exemption deductions. Taxpayers can no longer claim the $4,150 (or $4,050 for 2017) personal and dependent exemptions they would have been able to before the reform.
#3. Increased Child Tax Credit
The Child Tax Credit doubled from $1,000 to $2,000 per qualifying child. The refundable amount also grew from $1,100 to $1,400. Additionally, the new tax law introduced a $500 credit for non-child dependents. You might finally have a reason to thank your live-in father-in-law.
#4. Decreased Limits on Home Mortgage Interest Deductions
The mortgage interest deduction is now capped at $750,000 ($375,000 if you use married filing separately status) for loan balances taken out after December 15, 2017. This is a $250,000 decrease from mortgages taken out prior to December 15, 2017 (with a closing date before April 1, 2018). The limit is still $1 million for mortgages established prior to the December 15, 2017 cutoff.
#5. State and Local Taxes Now Limited
Before the TCJA, taxpayers could claim an itemized deduction for an unlimited amount of personal state and local income and property taxes. The itemized deduction is now limited to $10,000 for both state and local income and property taxes paid during the year ($5,000 if married filing separately).
#6. Moving Expenses No Longer Deductible
The TCJA eliminated the deduction for moving expenses. No deduction will be allowed to a taxpayer for moving expenses for tax years beginning after December 31, 2017 or before January 1, 2026. There is one exception, however, and this is for qualified members of the military. They may still qualify for the moving expense deduction.
#7. New Limit on Personal Casualty Losses Itemized Deductions
For 2018, the personal (non-business) casualty loss deduction will only be allowed to the extent it is attributable to a federally declared disaster.
What is a casualty loss? Examples include fire, storm, flood, hurricane, tornado, earthquake or volcanic eruption. They are sudden, unexpected, or unusual events.
#8. Tuition and Fees Deduction Eliminated
The deduction for tuition and fees as an adjustment to income expired as of December 31, 2017 and has not been extended as of January 2019.
#9. Charitable Contributions Increased
The tax code has always limited how much of your generosity you can claim as an itemized tax deduction, but the TCJA increased the threshold by 10%. Prior to January 1, 2018, charitable contributions were limited to 50% of the taxpayer’s adjusted gross income. For any taxable year beginning after December 31, 2017 and before January 1, 2026 the deduction cannot exceed 60% of the taxpayers adjusted gross income.
#10. Miscellaneous Itemized Deductions Eliminated
Unfortunately, no miscellaneous itemized deductions will be allowed for taxable years beginning after December 31, 2017 and before January 1, 2026. This means unreimbursed employee expenses, investment advisor expenses, tax preparation fees, union dues, etc. are no longer deductible.
NOTE: some of these fees may still be deductible at the state level.
The TCJA amended the Internal Revenue Code of 1986…yes, you read that right, 1986. Before the TCJA, the tax code hadn’t changed in more than three decades. This new legislation introduced a host of changes of varying degrees of impact and essentially created a whole new ballgame. Luckily, by keeping up with the changes, you can still play.
And if you need a little backup, the Bean Team is happy to step up to the plate.