The Tax Cuts and Jobs Act is in the midst of its first full year in service and I figured the dog days of summer are as good a time as any to take a look how it will affect us when we file this April.
The biggest changes are summarized here:
- Lower tax rates across the board. Here’s a table that shows the changes:
| Income Tax Rate | Income Levels for Those Filing As: | ||
2017 |
2018-2025 | Single | Married-Joint |
| 10% | 10% | $0-$9,525 | $0-$19,050 |
| 15% | 12% | $9,525-$38,700 | $19,050-$77,400 |
| 25% | 22% | $38,700-$82,500 | $77,400-$165,000 |
| 28% | 24% | $82,500-$157,500 | $165,000-$315,000 |
| 33% | 32% | $157,500-$200,000 | $315,000-$400,000 |
| 33%-35% | 35% | $200,000-$500,000 | $400,000-$600,000 |
| 39.6% | 37% | $500,000+ | $600,000+ |
- Standard deduction has nearly doubled, which will allow more people to take this deduction versus itemizing deductions. Much simpler and less paperwork.
- The personal exemption of $4,050 for yourself and each family member listed on your return is eliminated. Depending on income, this hurts families with a lot of dependents, aka children.
- Mortgage interest deduction is capped at the first $750,000 of the mortgage loan. This isn’t too big a deal because if you can afford a mortgage bigger than that, you’ll survive.
- The new code eliminates interest deduction on new home equity loans/HELOCS if it is not used for improving your home or if it causes the total amount of loans on your home to exceed $750,000. The good news is that any existing mortgages and home equity loans in place before 2018 are not affected by this change.
- Capped the state and local income tax (SALT) deduction at $10,000. This hurts people in high-tax states like NY and CA.
- Some other notable deductions that are no longer allowed (these used to be allowed if they exceeded 2% of your income):
- Moving expenses
- Tax preparation fees
- Investment advisory fees
You’ll definitely want to meet with your tax preparer prior to the end of the year to see what extra planning, if any, is needed to minimize your taxes under the new tax code.
Please let me know if you have any questions.
Joe Baker, CFP®
Baker Asset Management, LLC
joebaker@bakerassetmanagement.com
