Personal Exemptions and Standard Deductions
For 2017, taxpayers can claim a personal exemption of $4,050 each for themselves, their spouses, and any dependents. If they choose not to itemize deductions, they can also take a standard deduction based on their filing status.
2017 Standard Deductions
$6,350 for singles and separate filers
$9,350 for head of households
$12,700 for married couples filing jointly
For 2018 through 2025, the final bill suspends personal exemptions but roughly doubles the standard deduction amounts.
2018–2025 Standard Deductions
$12,000 for singles and separate filers
$18,000 for heads of households
$24,000 for married couples filing jointly
The standard deduction amounts will be adjusted for inflation beginning in 2019.
For some taxpayers, the increased standard deduction could compensate for the elimination of the exemptions,
and perhaps even provide some additional tax savings.
For those with multiple dependents or who itemize deductions, these changes might result in a higher tax bill,
depending in part on the extent to which those taxpayers can benefit from the family tax credits.
Family Tax Credits
The final bill also makes the child credit available to more families than in the past. Under the new law, the
credit doesn’t begin to phaseout until adjusted gross income exceeds $400,000 for married couples or $200,000
for all other filers, compared with the 2017 phaseouts of $110,000 and $75,000, respectively. The phaseout thresholds
won’t be indexed for inflation, though, meaning the credit will lose value over time.
Beginning in 2018, a $500 nonrefundable credit will also be available for qualifying dependents other than qualifying
children, such as a taxpayer’s parent, sibling, niece, nephew, aunt, uncle, or 17-year-old child.
All of the family tax credit provisions expire after 2025.
State and Local Tax Deduction
Between 2018 and 2025, taxpayers can claim a deduction of no more than $10,000 for the aggregate of state and local
property taxes and either income or sales taxes. However, the final bill explicitly forbids taxpayers from claiming an
itemized deduction in 2017 for prepayment of state or local income tax for a future year to avoid the dollar limitation
applicable for future tax years. The bill doesn’t include such a prohibition against prepayment of property taxes for
a future year.
Mortgage Interest Deduction
The final bill also tightens limits on the itemized deduction for home mortgage interest. Between 2018 and 2025,
it generally allows a taxpayer to deduct interest only on mortgage debt of up to $750,000. However, the limit remains
at $1 million for mortgage debt incurred before December 15, 2017, which will significantly reduce the number of
The deduction for interest on home equity debt is also suspended. Between 2018 and 2025, taxpayers can’t claim
deductions for such interest at all, regardless of when the debt was incurred or how it’s used.
Additional Deductions, Exclusions, and Credits
Here are some other tax breaks that have been affected by tax reform.
Medical Expense Deduction
This itemized deduction will continue and is enhanced for two years. The threshold for deducting such unreimbursed
expenses is reduced from 10% of adjusted gross income (AGI) to 7.5% for all taxpayers for both regular and
alternative minimum tax (AMT) purposes in 2017 and 2018.
Miscellaneous Itemized Deductions Subject to the 2% Floor
This deduction for expenses such as certain professional fees, investment expenses, and unreimbursed employee business expenses is suspended between 2018 and 2025. For employees that work from home, this includes the home office deduction.
The deduction for work-related moving expenses is also suspended between 2018 and 2025, except for active-duty members of the Armed Forces and their spouses or dependents who move because of a military order that calls for a permanent change of station.
The exclusion from gross income and wages for qualified moving expense reimbursements is also suspended, again except for active-duty members of the Armed Forces who move pursuant to a military order.
Personal Casualty and Theft Loss Deduction
Between 2018 and 2025, this deduction is suspended, except if the loss was due to an event officially declared a disaster
by the president.
The limit on the deduction for cash donations to public charities is raised to 60% of adjusted gross income (AGI) from 50%. However, charitable deductions for payments made in exchange for college athletic event seating rights are eliminated. Taxpayers must itemize to benefit from the charitable contributions deduction.
Alimony payments won’t be deductible—and will be excluded from the recipient’s taxable income—for divorce agreements executed (or, in some cases, modified) after December 31, 2018. Because the recipient spouse would typically pay income taxes at a rate lower than the paying spouse, the overall tax burden will likely be larger under this new tax treatment. This change is permanent.
Distributions from 529 plans used to pay qualifying education expenses are, generally, tax-free. The definition of
qualified education expenses has been expanded to include not just postsecondary school expenses, but also primary
and secondary school expenses. This change is permanent.
Notably, the final bill leaves many tax breaks untouched that would’ve been reduced or eliminated under the original
House or Senate bills, such as the:
Principal residence gain exclusion
Exclusion for employer-provided adoption assistance
Lifetime Learning credit
Deduction for student loan interest
Deduction for graduate student tuition waivers
The final bill also suspends the overall limitation on itemized deductions for 2018–2025.
Beginning in 2018, the new law increases the AMT exemption amount and the AMT exemption phaseout thresholds to the
AMT Exemption Amounts
$54,700 for separate filers
$109,400 for married couples filing jointly
$70,300 for singles and heads of households
AMT Exemption Phaseout Thresholds
$1 million for married couples
$500,000 for all other taxpayers other than estates and trusts
These amounts will be adjusted for inflation until the provision expires after 2025.
Similarly, the final bill doubles the estate tax exemption to $10 million between 2018 and 2025. The exemption is
adjusted for inflation and is expected to be $11.2 million for 2018. But because the exemption doubling is only temporary. Taxpayers with assets in the $5 million to $11 million range—twice that for married couples—will still have to keep estate taxes in mind in their planning.
Taxpayers who convert a pretax traditional IRA into a posttax Roth IRA lose their ability to later recharacterize—that is,
reverse—the conversion. Those who wish to recharacterize a 2017 Roth conversion must do so by December 31, 2017.
Recharacterization is still an option for other contributions. An individual can make a contribution to a Roth IRA,
for example, and subsequently recharacterize it as a contribution to a traditional IRA before the applicable deadline.
Disclaimer: The material appearing in this communication is for informational purposes only and should not be construed as legal, accounting, or tax advice. You should not substitute these materials for professional services, and should seek advice from an independent advisor before acting on any information presented. We assume no obligation to provide notification of changes in tax laws or other factors that could affect the information provided.
On Dec. 22, 2017 Congress finalized and the president signed into law the most sweeping tax overhaul in 36 years. Known as the 2017 Tax Cuts and Jobs Act, it will significantly change your tax filings going forward. Below is a quick review.