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What do I need to know about the new Trump tax plan? How can I best prepare myself for the change? (My husband and I both work full time and have two kids; we own a duplex that we rent out and live in, but we’re thinking of buying a house next year…I realize this scenario won’t apply to all your readers but wanted to provide background.) I’m wondering what to take into consideration with the tax law changing.
Great question! Many of my clients have been wondering the positive and negative ways they’ll be affected by the new tax plan.
Obviously, different types of households are affected in different ways. Since you’re parents and homeowners, I’ll focus on some provisions of the tax bill that you’re sure to notice. Keep in mind that provisions affecting individual taxpayers will expire at the end of 2025, and what happens after that depends on what Congress votes into the tax code in several years.
Tax Changes for Everyone
- New tax brackets: All taxpayers are bound to notice the shift: 10%, 12%, 22%, 24%, 32%, and 35%. Here’s a breakdown of the new 2018 tax brackets.
Tax Changes for Parents
- Child tax credit: This was doubled to $2,000, with a $400,000 income phaseout for married filers. Parents will receive one credit per child.
- Personal exemption: There is no longer a $4,050 personal exemption, which for a family of 4 was a $16,200 deduction (you used to get one exemption per member of your household).
- Standard deduction: This was doubled to $24,000, so more taxpayers will elect to take the standard deduction instead of itemizing. Unfortunately, this is a lower deduction that you would have gotten before with the personal exemption plus standard deduction for a family of four (that would have been $28,200).
Tax Changes for Homeowners
- Home equity loan deduction: You used to be able to deduct the interest for a home equity loan of $100,000 or less. If you planned to borrow against the equity in your home this year, you won’t get a tax break as a result.
- Mortgage interest deduction cap: You used to be able to deduct the interest for a mortgage of up to $1 million, and now that deduction has been capped at a $750,000 mortgage. This especially affects homeowners in cities with expensive real estate.
- State and local tax cap: You can now only deduct up to $10,000 of property and state and local income taxes. This is something to keep in mind if you’re moving to a high cost-of-living area.
- Alternative Minimum Tax: AMT is imposed on a taxpayer or corporation if it is higher than their regular income tax. The income threshold is increasing to $70,300 for singles, up from $54,300, and to $109,400 for married couples, up from $84,500. This means that fewer people will be subject to AMT.
Here are some helpful articles that explain the new tax bill in more detail:
- Good Financial Reads: Understanding Tax Reform
- What Every Taxpayer Needs to Know About the New Tax Law
The post Ask Gen Y Planning: What Do I Need to Know About the New Tax Bill? appeared first on Gen Y Planning.