Will I benefit from the Tax Cuts and Jobs Act? Good question! The sweeping tax reform that was passed into legislation last year became effective January 1, 2018. Among the changes made by the law, that impacts virtually every taxpayer, were the repeal of the personal exemption, increase in the standard deduction, modification to itemized deductions and doubling of the child tax credit.
Included in the changes to itemized deductions were:
- Limiting the amount of mortgage interest deduction to interest on $750,000 of acquisition indebtedness (mortgage debt incurred prior to 12/15/2017 is grandfathered).
- A cap of $10,000 on the amount of state and local taxes that can be deducted
- Miscellaneous itemized deductions subject to the 2% floor have been repealed.
- Casualty losses are deductible only if they are incurred in a federally declared disaster.
- Lowering the threshold for deductible medical expenses to 7.5%
The combination of doubling the standard deduction while placing limitations on the amounts individuals can claim as itemized deductions effectively eliminates many individuals from claiming itemized deductions.
The impact on your bottom line? It depends on your individual circumstances. To illustrate, let’s compare 3 families:
Family 1 is a married couple with adjusted gross income of $100,000, 2 children ages 8 and 12, mortgage interest $6,000, property tax $5,000, state income tax $3,000, charitable contributions $500.
Family 2 is a married couple with adjusted gross income of $200,000, 2 children 19 and 22 both in college, mortgage interest $10,000, property tax $18,000, state income tax $6,000, charitable contributions $1,000.
Family 3 is a married couple with adjusted gross income of $400,000, 2 children ages 10 and 12, mortgage interest $12,500, property tax $25,000, state income tax $8,000, charitable contributions $7,500.
| Family 1 | Family 2 | Family 3 | ||||
| 2017 | 2018 | 2017 | 2018 | 2017 | 2018 | |
| AGI | 100,000 | 100,000 | 200,000 | 200,000 | 400,000 | 400,000 |
| Standard Deduction | 24,000 | 24,000 | – | |||
| Itemized Deduction | 14,500 | 35,000 | 50,414 | 30,000 | ||
| Exemptions | 16,200 | 16,200 | 4,860 | |||
| Taxable Income | 69,300 | 76,000 | 148,800 | 176,000 | 344,726 | 370,000 |
| Tax | 9,466 | 8,739 | 28,678 | 30,819 | 88,977 | 81,779 |
| AMT | 319 | 5,344 | ||||
| Addt’l Medicare Tax | 1,350 | 1,350 | ||||
| Child Tax Credit | 2,000 | 4,000 | 1,000 | 4,000 | ||
| Total Tax | 7,466 | 4,739 | 28,997 | 29,819 | 95,671 | 79,129 |
| Tax decrease (increase) | 2,727 | (822) | 16,542 | |||
With everyone’s circumstances being different, there is no definitive answer on the impact on your bottom line. If you wish to better understand the impact of the changes on you and your family, Team DKB is here to help!
Contact a member of our tax team today to learn more.
