New Tax Law
[1]New Tax Law changes and what they mean for you:
It is important to note that this article is a high level over view of the tax law changes that take place January 1st, 2018 – December 31st, 2025. After 2025, with some exceptions, these laws will revert back to the existing tax laws. I encourage you to work with your tax professional to see how these changes will specifically impact you.
Individual Tax Rates – Currently the top tax rate is 39.6%,that is being reduced to 37%. There will still be 7 tax brackets with the new law. The below table provides a current rate to the 2018 income and rates:
Current Income Levels
Current Rates
2018 Income Levels
2018 Rates
Single (0-$9,525), Married (0-$19,950)
10%
Single (0-$9,525), Married (0-$19,950)
10%
Single ($9,526 - $38,700), Married ($19,951 - $77,400)
15%
Single ($9,526 - $38,700), Married ($19,951 - $77,400)
12%
Single ($38,701 – $93,700), Married ($77,401 - $156,150)
25%
Single ($38,701 – $82,500), Married ($77,401 - $165,000)
22%
Single ($93,701 – $195,450), Married ($156,151 - $237,950)
28%
Single ($82,501 – $157,500), Married ($165,001 - $315,000)
24%
Single ($195,451 - $424,950), Married ($237,951 – $424,950)
33%
Single ($157,501 – $200,000), Married ($315,001 – $400,000)
32%
Single ($424,951 - $426,700), Married ($424,951 - $480,050)
35%
Single ($200,001 - $500,000), Married ($400,001 - $600,000)
35%
Single (over $426,700), Married (over $480,050)
39.6%
Single (over $500,000), Married (over $600,000)
37%
Individual standard deduction – The standard deduction is going to almost double. If you are a married couple you would get a standard deduction of $24,000 in 2018, compared to the current level of $13,000. Single filers would get $12,000, up from $6,500. The personal exemption of $4,150 will be repealed at all levels.
Alternative Minimum Tax (AMT) – New phase out limits will increase to $109,400 for married couples, and $70,300 for single filers (up from $86,200 and $55,400).
Capital Gains – the maximum rate of 20% on capital gain income is unchanged. The rate could be lower depending on your adjusted gross income (AGI).
Itemized Deductions – Individuals will be limited to the aggregate of their state and local income taxes, plus their property taxes to $10,000 for married and single filers, $5,000 for married filing separately. Most of the miscellaneous deductions subject to 2% of AGI will be eliminated, including tax prep and investment advisory fees.
Medical Expense deduction – Currently you can only deduct expenses that reach above 10% of AGI. The new bill reduces that floor to 7.5%.
Mortgage Interest – Individuals are generally allowed for an itemized deduction of up to $750,000 for their primary and secondary mortgage interest. This is down from $1,000,000 currently. Mortgages that are already on the books or started before 12/16/17 are grandfathered and meet other conditions. Interest on home equity lines of credit is no longer deductible.
Capital Gain Exclusions – allows for married couples to exclude $500,000 in gains from the sale of their primary residence as long as they owned and used the house in 2 of the last 5 years. This rule remains unchanged.
Section 529 plans – distributions from these plans are used to pay for higher education expenses. The tax law change expanded the use of distributions to include costs related to enrollment or attendance at an elementary or secondary public, private, or religious school. This will not expire in 2025.
Pass through deduction – currently any income passed through an LLC, Sole Proprietorship, partnerships, or S Corporations are taxed at ordinary income rates. There is a new 20% deduction for qualified business income from sole proprietorship, S corporation, or partnership.
Charitable deduction – the cash gift to public charities is deductible as long as it doesn’t exceed 60% of the individual’s AGI. This is up from the current 50% level. The 80% deduction for university athletic seating rights is repealed.
Gift Tax Exemption – the estate, gift, and GST tax exemptions doubles to $11.2 million per person.
Child Tax Credit – The child tax credit double to $2,000 per qualified child, with $1,400 being refundable. The phase out limits is increased to $110,000 (single) and $400,000 (married).
Individual Mandate on Healthcare – the tax penalty for not having health insurance will be repealed. This rule will not expire in 2025.
As previously mentioned please consult with your tax advisors to see how these changes affect your situation.
Michael Anicito, CFP®
Michael is an independent CERTIFIED FINANCIAL PLANNER™ who practices in New York and New Jersey. He works with individuals and business owners alike to help save for retirement and manage their assets. He is currently the President of Inspire Investment Solutions, LLC (www.inspireis.com). For more information or a complimentary consultation you can reach him at 646.606.2111 or atmike@inspireis.com.
Securities and Advisory services offered through LPL Financial, a Registered Investment Advisor, Member FINRA/SIPC. LPL Financial does not offer tax or legal advice.
[1] Information was obtained from ‘An Overview of the 2017 Tax Legislation: Impact to Individuals, prepared by PricewaterhouseCoopers, December 2017. www.pwc.com
