Tax Reform and How it May Affect You
As of today, the House and Senate have each passed their own versions of the tax bill. They will have to hammer out differences between the plans before a final bill can be approved and signed by President Trump.
Here are a few pros and cons that we see in the current bills. Although not yet final, these changes are expected in some degree in the final legislation, which would become effective for 2018 tax returns.
Pro: The standard deduction will be increased depending on your filing status to $12,200 for single and $24,400(House) and $24,000(Senate) for married filing jointly.
Con: The personal and dependent exemptions will no longer be available. They were worth $4,050 per person last year. A family of four would lose $16,200 in personal exemptions.
Pro: Both plans call to increase the amount of the child tax credit and increase the income level at which that credit is phased out.
Con: Homeowners beware: Both proposed versions of the bill cap the real property tax deduction to $10,000.
Con: Deductions for state and local income taxes would be eliminated.
Con: The mortgage interest deduction limits the deduction on new mortgages ($500,000 principal).
Con: No mortgage interest deduction on vacation homes.
Con: Repeals the deduction on home equity interest.
Con: Miscellaneous deductions will be eliminated. This includes tax preparation fees, union dues, unreimbursed employee expenses, investment expenses…
Pro: Everyone’s favorite Alternative Minimum Tax would be gone under the House bill, whereas the Senate bill would keep the AMT (boo!) but raise the exemption and phase-out thresholds.
Con: Tax rates would change under both plans – The House version has just 4 tax brackets compared to the Senate’s 7 brackets. Fewer tax brackets mean a bigger jump between brackets.
Pro: Partnerships and S-Corps taxed as pass-throughs would see a reduction in tax rate on that income under both plans, although the details differ.
What to do: CONTACT YOUR CPA RIGHT AWAY! Consider paying for expenses before year end that are a deduction in 2017 but will be limited or eliminated in 2018 such as real property taxes, state and local estimates, tax preparation fees, etc.
Note: This is only a brief listing of the potential changes to be made. Stay tuned to learn more.