Well, it's happened. We have a new tax act. It's called the Tax Cuts and Jobs Act
and it was passed by the Senate on December 19th and the House on December
20th. The president is expected to sign it, but probably not until January 1st of
2018 because of a few procedural items. Virtually all provisions will take
effect in 2018 and the majority of taxpayers will end up paying less tax.
Although if you live in California or New York high - tax states - and you have
mid to high income you probably will pay a little bit more in tax. I want to go
over some of the major individual provisions so you know what's changing
and what's staying the same. So let's start with there's seven tax rates
that will start at 10 percent and will go to 37 percent. Currently, we're 10 percent
to 39.6 percent, but each rate along the way is a little bit lower. There's a higher
standard deduction. $12,000 for single $24,000 for married. Currently, it's
about $6,350 for single, $12,700 for married meaning that your itemized
deductions like medical deductions, home mortgage interest, property taxes,
state taxes. So anyway, you take either the higher that or standard deduction. So
less people will be itemizing going forward. There is a disallowance of
exemptions. Right now you get to deduct $44,050 per
person and your family. That goes away but the child tax credit
goes up to $2,000 from $1,000. So if you have kids that are 16 and younger you'll
probably be okay because of that. Medical deduction - that actually is retained.
There was some discussion that that would go away. In fact, in 2018 and 2019
it's you have to get over 7.5% of your adjusted gross income.
Currently it's 10%. The state and local tax deduction, that's the
biggest one. That essentially goes away with one exception. You're allowed to
take $10,000 any combination of property taxes and state
income taxes. This is what's going to hurt the people that are in high tax
states. Mortgage deduction - that's retained, but now you can only
have a loan up to $750,000 and be deductible. Don't worry
if you have a loan that's a million dollars as of
December 15th, 2017 you get grandfathered in. So you can
deduct all the interest on that. Realize that starting in 2018 you can no longer
detect your home mortgage interest or I should say your home equity interest on
home equity type loans. Charitable contributions are retained so continue
to give to charity. There's no change there. Miscellaneous itemized deductions,
those go away. So unreimbursed employee expenses, investment expenses, tax prep
fees, things like that, those are repealed. So none of that starting in 2018. Capital
gains rates that stays the same. There's a 0% rate, 15% rate, and
20%. No change there. That's for long-term capital gains. You have hold
an asset for a year or longer. You get that special rate or qualified dividends.
The alternative minimum tax - it's not repealed. It's still here, but the
exemptions are at higher amount so less people will be subject to that.
Estate tax exemption - if you pass away that doubles. So it's going to be $11.2 million
per person, $22.4 million for a married couple.
The residence gain sale exclusion, there was concern that it would change.
That's going to stay the same. You live in your home two out of five years,
you're single, you get a $250,000 gain exclusion. You're married, it's a $500,000
exclusion. And the Roth IRA conversion recharacterization, the ability to undo
or change a Roth IRA conversion.That was repealed, so you can no longer do that.
So there's a lot of corporate changes too, but I want to focus on individual today.
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