On December 22, 2017, President Donald Trump signed the Tax Cuts and Jobs Act. These set of the laws will affect every American household and business starting January 1st, 2018.
Here are 7 changes in the tax law that could affect you:
1. Standard Deduction
The standard deduction almost doubled. Single taxpayers are allowed to have $12,000 of non-taxable income in 2018, while in 2017 this number was only $6,500. Those who are married and filing jointly will have $24,000 (2017 - $13,000) of non-taxable income. For heads of households, the deduction will be $18,000, comparing to $9,550 of last year.
2. Personal Exemption
Under the new tax reform, personal exemption will be eliminated in 2018. Taxpayers can no longer claim $4,500 for each of their dependents.
3. Child Tax Credit
In 2018 the Child Tax Credit increases from $1000 to $2000 per qualifying child, those who are under 17. Up to $1,400 of the child tax credit can be received as a refundable credit. It means that it can go towards your tax refund. In addition to the increase, the new rule will include $500 of nonrefundable credit per non-child dependents.
4. Contribution limits for retirement savings
In 2017, employees who participated in retirement savings plans such as 401(k), 403(b), and most 457 plans could contribute up to $18,000. This year this limit increased to $18,500.
5. State and local tax deduction
Starting 2018 through 2025, taxpayers are limited to $10,000 to claim an itemized deduction for both income and property taxes paid during the year. We all know that if you have a huge property tax bill, you use it as a deduction on your tax return when you file an itemized tax return. Now you can deduct only up to $10,000.
6. Affordable Care Act Individual Mandate
Starting January 1, 2019, taxpayer who does not purchase health insurance will no longer face penalties. Before January 1st, 2019, ACA individual mandate was required for non- exempt US citizens and residents of the USA to have health insurance. Tax preparers who did not qualified for the exemption and did not purchase health insurance may face penalties. The amount depends on taxpayer income.
7. Mortgage Interest Deduction
The deduction for mortgage interest is capped at $750,000 for mortgage loan balance taken out after December 15th, 2017. Prior to the December 15th, 2017 deduction was capped up to $1,000,000.