In December of 2017, President Trump signed a tax bill that may affect your 2018 tax situation. The changes to the tax code include an increase to the standard deduction, decreases in home-related deductions and an increase in the child tax credit. We chatted with On Call attorney Stuart Bronstein about the new tax changes and how they may affect the average filer. He explained the changes to us and offered advice on how to prepare for filing your 2018 return.
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Rocket Lawyer: How will the new tax law changes affect middle America?
Stuart: In the short run, most people will see their tax bills go down slightly. Over the next ten years, the tax savings will be less and less and will eventually disappear.
Rocket Lawyer: How will the tax law change affect homeowners or home buyers?
Stuart: Up until now, home buyers could deduct interest on homes with mortgages up to $1,000,000. If the mortgage was more than that, they could deduct a portion reflecting that amount of the loan. For homes purchased under the new law, the amount of the deduction is reduced to mortgages of up to $750,000. Additionally, people used to be able to write off interest on another $100,000 of money they borrowed with a home equity loan, even if the money were used for something else. That provision has gone away, and the home equity interest deduction is no more.
*Interest on home equity loans used to directly improve the home can still be deducted. But you can no longer deduct interest for loans used for things like debt consolidation, starting a business or paying down medical bills.
Rocket Lawyer: Will you still have to pay penalties for the Affordable Healthcare Act if you don’t have qualifying health insurance?
Stuart: The one thing the law did with the Affordable Care Act was to eliminate those penalties. Congress wanted to eliminate the ACA completely, but to comply with the rules so that a filibuster couldn’t stop them, that’s the most they could do.
*This penalty will still be charged in 2018. This change takes effect in 2019.
Rocket Lawyer: What does the new tax law do to the child tax credit?
Stuart: The child tax credit was doubled from $1,000 to $2,000 per qualifying child. Up to $1,400 of that amount is refundable. It also raises the adjusted gross income phaseout threshold, starting at the adjusted gross income of $400,000 for joint filers and $200,000 for all others. The credit was further modified to provide for a $500 nonrefundable credit for qualifying dependents other than qualifying children. These
changes expire in 2025.
*The credit is reduced if your adjusted gross income is above the predetermined amount (or phaseout threshold) for qualification. The more you make you will receive a smaller credit.
Rocket Lawyer: What changes are happening to the standard deduction?
Stuart: The standard deduction is nearly doubled. It’s now $24,000 for married individuals filing a joint return, $18,000 for head-of-household filers, and $12,000 for all others, indexed for inflation starting next year. These changes expire in 2025.
*The standard deduction is usually adjusted each year to account for inflation and may not be the same each year.
Rocket Lawyer: Will the tax changes make it harder to pay for college?
Stuart: While there was talk of things like eliminating the deduction for student loan interest and eliminating the exclusion from tax for graduate student tuition waivers, those provisions were not changed. The deduction for educational expenses that expired at the end of 2016 was not renewed.
Rocket Lawyer: Will the corporate tax cuts create jobs?
Stuart: It’s hard to say, and economists differ on the effect of the bill on the economy. Most agree that the bill will give a very slight boost to the economy in the short term, but in the long term won’t have any lasting effect.
Rocket Lawyer: What should a person do to prepare for the new tax rules?
Stuart: For the average person, the changes will make things different in terms of doing your tax return, but in the end won’t really change much. I haven’t found much if anything that anyone (other than some businesses) can do to use any of the provisions of the new tax act in a way that would make any helpful difference. For small businesses, one change is that capital expenditures (e.g., for buying cars or expensive machinery) used to have to be depreciated over a period of years. The new act makes it easier to write the entire cost off in the year of purchase. So, if people have been putting off making these kinds of expenditures, doing so in the next few years (before the law changes again) might be a good idea.
Rocket Lawyer: Will this impact anything on my 2017 taxes?
Stuart: No, not really. The only 2017-related thing that will be affected is the deductibility (on your 2018 return) of costs to prepare your 2017 taxes.
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This article contains general legal information from a licensed professional. Rocket Lawyer is not responsible for the advice they give. Rocket Lawyer is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.