Tax Cuts and Jobs Act and You



On December 20, 2017 congress passed the Tax Cuts and Jobs Act (TCJA. The act amends the Internal Revenue Code of 1986. The act makes major changes to Federal income taxes for the 2018 thru 2025 tax years.  2017 Taxes, due April 2018, continue to follow the pre-act regulations and rates. The following material provides a brief summary of the significant act elements which may impact individuals and families. As always you should review your specific case with a financial advisor, a tax or Elder Law attorney to determine the full impact of the new law.

The act’s major elements include:

  •    • Reducing number of tax brackets

  •    • Reducing tax rates

  •    • Increasing the standard deduction

  •    • Increasing the family tax credits

  •    • Eliminating personal exemptions

  •    • Limiting deductions for state and local income taxes (SALT) and property taxes

  •    • Limiting the mortgage interest deduction

  •    • Reducing the alternative minimum tax

  •    • Reducing the scope of the estate tax

  •    • Eliminating the individual mandate of the Affordable Care Act (ACA)

  •    • Reducing business related taxes

Tax Bracket and Rates

The new law keeps seven tax brackets, but with different rates and different break points. Your new bracket means more of your taxable income will be hit with lower rates. However, restrictions or elimination of some tax breaks may mean more of your income will be taxed. Yearly inflation indexing of the tax brackets and various tax breaks is altered in the tax package. Thus the future brackets will not be as favorably adjusted as inflation increases.
Single Return

Single Return

Joint Return

Taxable Income

Tax Rate

Taxable Income

Tax Rate

Up to $9,525


Up to $19,050


$9,526 to $38,700


$19,051 to $77,400


$38,701 to $82,500


$77,401 to $165,000


$82,501 to $157,500


$165,001 to $315,000


$157,501 to $200,000


$315,001 to $400,000


$200,001 to $500,000


$400,001 to $600,000


Over $500,000


Over $600,000


The overall tax structure for capital gains and qualified dividends did not change under the act, except that the income levels at which the 15% and 20% rates apply were altered (and will be adjusted for inflation after 2018). For 2018, the 15% rate will start at $77,200 for married taxpayers filing jointly, $51,700 for heads of household, and $38,600 for other individuals. The 20% rate will start at $479,000 for married taxpayers filing jointly, $452,400 for heads of household, and $425,800 for other individuals.

Standard Deduction and Personal Exemptions:

The act increased the standard deduction through 2025 for individual taxpayers to $24,000 for married taxpayers filing jointly, $18,000 for heads of household, and $12,000 for all other individuals. The additional standard deduction for elderly and blind taxpayers was not changed by the act.
The act repealed all personal exemptions through 2025. The act eliminates the personal and dependent exemptions which are currently $4,050 for 2017 and were expected to increase to $4,150 in 2018.

As under present law, individuals age 65 or older and blind people get even higher standard deductions. Two 65-year-olds filing a joint return, for exnbsple, would add $2,500 to the $24,000 standard deduction. An individual taxpayer age 65 or older would add $1,550, bringing the standard deduction to $13,550. As with the previous law, there may be income limits on these exemptions.

Family Tax Credits

Starting in 2018, the $1,000 tax credit for each child under age 17 is doubled to $2,000, with $1,400 of the credit refundable to lower income taxpayers. Additionally, the package significantly increases the income phase-out thresholds. It raises these threshold from $110,000 for a married couple to $400,000.

In addition to the enhanced child tax credit, there is a new, nonrefundable credit of $500 for each dependent who is not a qualifying child including, for exnbsple, an elderly parent or disabled adult child. This credit would phase out under the same income thresholds.

Deduction Limitations

The act repealed the overall limitation on itemized deductions, through 2025.
Mortgage interest: The home mortgage interest deduction was modified to reduce the limit on acquisition indebtedness to $750,000 (was $1 million).
Home-equity loans: The home-equity loan interest deduction was repealed through 2025.
State and local taxes: Deduction up to $10,000 ($5,000 for married taxpayers filing separately) in state and local income or property taxes.
Casualty losses: Deduction for casualty losses only if the loss is attributable to a presidentially declared disaster.
Charitable contributions: The act increased the income-based percentage limit for charitable contributions of cash to public charities to 60.
Miscellaneous itemized deductions: All miscellaneous itemized deductions subject to the 2% floor under previous law are repealed through 2025 by the act.
Medical expenses: The act reduced the threshold for deduction of medical expenses to 7.5% of adjusted gross income for 2017 and 2018.
Alimony: For any divorce or separation agreement executed after Dec. 31, 2018, the act provides that alimony and separate maintenance payments are not deductible by the payer spouse.
Moving expenses: Moving expense deduction is repealed through 2025, except for members of the armed forces on active duty who move pursuant to a military order and incident to a permanent change of station.
IRA re-characterizations: The act excludes conversion contributions to Roth IRAs from the rule that allows IRA contributions to one type of IRA to be re-characterized as a contribution to the other type of IRA. This is designed to prevent taxpayers from using re-characterization to unwind a Roth conversion.

Alternative Minimum Tax Exemptions Increased.

The act limits the number of taxpayers impacted by the individual alternative minimum tax(AMT)by significantly hiking the AMT exemption by raising the exempted income from $84,500 to $109,400 for married filing jointly and from $54,300 to $70,300 for single taxpayers.

Estate Tax.

The act doubles the estate and gift tax exemption for estates of decedents dying and gifts made after Dec. 31, 2017, and before Jan. 1, 2026. The basic exclusion amount increased from $5 million to $10 million and will be indexed for inflation occurring after 2011

Individual Mandate

The act reduces to zero the amount of the penalty imposed on taxpayers who do not obtain health insurance that provides at least minimum essential coverage, effective after 2018. It also temporarily lowers the floor above which out-of-pocket medical expenses can be deducted from the current law floor of 10% to 7.5% for 2017 and 2018

Self-employed and small businesses:

The act has many changes for business. The biggest includes a reduction in the top corporate rate to 21%.  The act implements a new 20% deduction for incomes from certain type of “pass-through” entities (partnerships, S Corps, sole proprietorships), and it eliminates the corporate alternative minimum tax.

Information provided herein is not meant to be comprehensive for all situations. It includes guidelines for seniors so they might determine if they should pursue a question further.
Please consult a professional financial advisor before taking any actions. Look here to find one near you. http://www.napfa.org