The changes enacted by the Tax Cuts and Jobs Act affect every taxpayer filing a 2018 tax return this year. To help my fellow taxpayers understand these changes, I have prepared a quick overview below.
Tax Rates Lowered
Starting in 2018, tax rates are lower for almost every income bracket. The seven rates range from 10 percent to 37 percent.
Standard Deduction Nearly Doubled
For 2018, the basic standard deduction is $12,000 for singles, $18,000 for head of household, and $24,000 for married couples filing a joint return. Higher amounts apply to people who are blind or at least age 65. Along with other changes, this means that more than half of those who itemized their deductions in tax year 2017 may instead take the higher standard deduction on their 2018 tax return.
Itemized Deductions Limited or Discontinued
Home mortgage interest on a new mortgage above $750,000 is not deductible, as well as interest on home equity loans not used for home improvements. State and local taxes are only deductible up to $10,000, but this limit does not apply to your rental property or business taxes. All those business expenses and other miscellaneous itemized deductions that you deducted on Form 2106 and Schedule A in prior years are no longer deductible in 2018.
Child Tax Credit Doubles and Phase-out Expanded
The child tax credit is now $2,000 for each qualifying child under the age of 17. And the phase-out doesn’t begin until your AGI exceeds $400,000 for married couples and $200,000 for other taxpayers. Remember: Last year the credit was $1,000 and the phase-out began at $110,000 for married couples. This is a big deal for young families.
New Credit for Other Dependents
Taxpayers can claim a $500 credit for each dependent who doesn’t qualify for the Child Tax Credit. This includes older children, as well as qualifying relatives, such as a parent.
That is all today. I look forward to visiting with you next week. In the meantime, don’t hesitate to reach out if you have a question—you can call my office at (713) 785-8939, send me an email, or leave a comment on this post. I’d love to hear from you.