As the 2017 tax deadline has come and gone, you may be wondering how the new tax law for 2018 might affect you. The Tax Cuts and Jobs Act has an affect on many of your tax deductions. One of the many changes has to do with the standard deduction you take each year.
If you are used to taking the standard deduction, you’ll notice an increase in the amount you can deduct. For single filers, it increases from $6,350 to $12,000 a year. If you are married and filing as married filing joint, your standard deduction will increase from $12,700 to $24,000 a year. If you are a W-2 employee, you will have noticed a change in how much is being withheld from your paycheck each payday since February. This is due to the increase in the standard deductions.
Although there is an increase in the standard deduction, the new tax plan completely eliminates personal exemptions. This will primarily affect those filers that claim multiple dependents. To help offset that loss, the Child Tax Credit was increased from $1,000 to $2,000 a year and there is a $500 credit for any dependents claimed that are your children.
Another big change due to the new tax law is your mortgage interest deduction. You may be used to deducting your mortgage interest, but that deduction now has a limit to the first $750,000 of the mortgage. Additionally, under former rules, interest on home equity loans or lines of credit was tax-deductible. However, this deduction will no longer be available starting in 2018. This is not a permanent change; the home equity deduction will return in 2026.
There will also now be a limit on the amount of state taxes you can deduct – up to $10,000. State taxes that you can include in this deduction are property, income, or sales tax. Previous rules allowed filers to deduct the full amount of either one, but now the deduction is capped and all are lumped together.
More changes include your high medical expenses. If you have high medical expenses and were born after 1952, you will now receive a better deduction. The new rate will be any expenses above 7.5% of your income where the old rate was anything above 10% of your income.
These are just a few of the changes that the new tax plan will have. Stay tuned for some other changes that could affect you! If you have any questions or need help with adapting to the new tax laws, Polston Tax can help! Call us today at 844-841-9857 or click below for a free consultation.