One of the main things that has changed is whether or not it will continue to make sense for you to itemize your tax deductions or not. While the final bill didn’t really deliver on the ability to file your taxes on a post-card, it does minimize the effort for those who no longer itemize. The general thinking is that pool of tax payers will expand since the standard deduction has increased.
Standard Deductions increasing nearly 90%. For married couples filing jointly, the standard deduction rises to $24,000 from $12,700; for single filers, it moves to $12,000 from $6,350.
Personal exemption ending, but child tax credit increasing. The bill ends the personal exemption of $4,050 for you, your spouse, and your dependents; it doubles the child tax credit to $2,000 per dependent child under age 17.
Limits to state and local taxes (“SALT”). Under the bill, you may only deduct up to $10,000 in state and local taxes, including sales, income, and property taxes. This deduction was not previously subject to limitation.
Caps on mortgage interest. The bill allows mortgage interest deductions for current homeowners, but caps the interest deduction at $750,000 in mortgage debt for homes bought in 2018 and beyond, down from the $1 million limit in place now. It eliminates deductions for interest on home-equity loans, as well as deductions for moving expenses and employer-provided expense reimbursements (except for members of the military).
Expands medical deductions. Current law allows for deduction of medical expenses over 10% of adjusted gross income (AGI). The bill lowers the threshold to 7.5%.
Changes to investment advice fee itemized deduction. Investors will no longer be able to take an itemized deduction for investment advice expenses. The effective tax rates on investment returns will be higher. For example, if a client realizes a 6% return on an investment and pays a 1% management fee, the client would earn a net 5% but still pay tax on the full 6% gain. This will result in higher taxes for clients and will effectively make independent advice more costly.
Charitable deduction decisions may change. Although the current tax deductions stay in place, the doubling of the standard deduction to $24,000 essentially raises the threshold on deductibility. Taxpayers will have to itemize donations to get the benefit.