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Congress has approved the first major tax overhaul since Ronald Reagan was President. The measure, currently called the Tax Cuts and Jobs Act, which was just signed by President Trump, will affect many of us.
- The new tax bill is the first significant reform of the U.S. Tax Code since 1986.
- The new tax bill contains provisions affecting Individuals which technically expire by the end of 2025, though most expect that a future Congress won’t actually let them lapse. Most of the corporate provisions are permanent.
- With the Tax Cuts and Jobs Act individuals will continue to be placed in one of seven tax brackets based on their income. But the rates for some of these brackets have been lowered. The new rates are 10%, 12%, 22%, 24%, 32%, 35%, and 37%.
- With the Tax Cuts and Jobs Act the Standard deduction has essentially been doubled. For single filers, the standard deduction has increased from $6,350 to $12,000; for married couples filing jointly, it’s increased from $12, 700 to $24,000.
- With the Tax Cuts and Jobs Act the child tax credit has doubled to $2,000 for children under 17.
- Taxpayers may now claim a temporary credit for non-child dependents. This can apply to a number of people being supported by the taxpayer, such as children over age 17, elderly parents or adult children with a disability.
- The alternative minimum tax, a parallel tax system that ensures people who receive a lot of tax breaks still pay some federal income taxes, remains in place for individuals, but will apply to fewer people than previously.
- With the Tax Cuts and Jobs Act the mortgage interest deduction has been lowered, and anyone buying a new home will only be able to deduct the interest on the first $750,000 of their mortgage debt.
- In the new tax bill you can deduct up to $2,500 for student loan interest.
- Homeowners who sell their house for a gain will still be able to exclude up to $500,000 (or $250,000 for single filers) from capital gains, so long as they’re selling their primary home and have lived there for two of the past five years
- There has been some expansion in the use of 529 savings accounts. Now up to $10,000 can be distributed annually to cover the cost of sending a child to a “public, private or religious elementary or secondary school.”
- With the Tax Cuts and Jobs Act alimony payments are no longer deductible for the person who writes the check. This provision will apply to couples who sign divorce or separation paperwork after December 31, 2018.
- Before tax reform passed, people could deduct the cost of having their taxes prepared by a professional, or the money they spent on tax preparation software. That tax deduction has been eliminated.
- Before tax reform, few estates were subject to the estate tax. The amount of money exempt from estate tax – previously set at $5.49 million for individuals, and at $10.98 million for married couples – has been doubled.
- With the Tax Cuts and Jobs Act the corporate tax rate has been cut from 35% to 21%.