Q: What were the exact changes made to the U.S. tax code this year?
A: Many of the changes signed into law were different from those planned. Here are the primary tax changes for 2018:
1.) Income bracket changes
The seven-bracket system remains in place, but the income levels for each bracket were tweaked. The old income levels for the seven brackets were 10%, 15%, 25%, 28%, 33%, 35% and 39.6%. The new rates are 10%, 12%, 22%, 24%, 32%, 35% and 37%.
2.) Removal of Obamacare penalties
Though you will still need to show proof of coverage for the 2017 and 2018 tax years, there will be no penalties for those who do not have adequate health coverage starting in 2019.
3.) Standard deductions and personal exemptions
In 2017, the standard deduction for the single taxpayer was $6,350, in addition to one personal exemption of $4,050. For 2018, those deductions will be combined into one larger standard deduction of $12,000 for those filing separately, and $24,000 for joint filers.
4.) Child tax credit
Deductions and credits for children age 16 and below have doubled from $1,000 to $2,000.
5.) Estate tax exemption
Before the current changes, the 40% estate tax applied to the portion of an estate valued at $5.6 million for the individual, and $11.2 million for a married couple.
For 2018, taxpayers filing as individuals will be granted an exemption of $11.2 million, while married couples will have a $22.4 million exemption.
6.) Education tax breaks
The new tax bill has expanded the available use of funds in a 529 college savings plan to include other levels of education.
7.) Deduction changes
There have been slight changes made to several deductions.
- Mortgages – All mortgages taken after Dec. 15, 2017 and totaling up to just $750,000, will qualify for a deduction.
- Charity – Taxpayers can now deduct as much as 60% of their income for charitable donations.
- Medical expenses – The cap for the medical expenses deduction has been cut to 7.5% of Adjustable Gross Income. This change actually is retroactive to the 2017 tax year and will only apply through 2018.
- State and Local Taxes (SALT) – The total SALT deduction, which includes property and income tax, cannot exceed $10,000.
8.) Corporate tax rate changes
The corporate tax rate was lowered to a flat 21% on all profits.
9.) Disappearing deductions
The following deductions have been cut from the tax code:
- Casualty and theft losses
- Unreimbursed employee expenses
- Tax preparation expenses
- Moving expenses
- Reimbursement for employer
- Subsidized parking and transportation
10.) Repatriation of foreign assets
The new tax law features a one-time repatriation rate of 15.5% on all liquid assets and 8% on non-liquid assets held overseas.
11.) Changes to the AMT exemption amount
The alternative minimum tax (AMT) exemption was permanently adjusted as follows:
- For a single taxpayer or head of household, the AMT rate will increase from $54,300 to $70,300.
- For married couples filing jointly, the AMT rate will increase from $84,500 to $109,400.
- For married couples filing separately, the AMT rate will increase from $42,250 to $54,700.