Ghada Burton Explains the Changes the New Tax Cuts & Jobs Act Implemented in 2018
In 2018, the Tax Cuts and Jobs Act that was passed in December of 2017, went into effect. There were major implications to personal tax filing from this new law, which were felt in 2018. Confusion about the changes has continued into 2019. San Francisco-based tax professional, Ghada Burton, took the time to clarify to her clients the confusion surrounding the Tax Cuts and Jobs Act, and the tax impact of this new law on their specific tax position, providing some important advice relating to the tax changes for 2018 which will continue to affect the taxpayer’s tax filings and returns in the near future. The following summary should not be considered as legal tax advice on any individual matter or circumstance . The contents of this narrative are intended for general information purposes only. Taxpayers are advised to seek expert opinion from tax professionals on matters relating to their specific tax situation.
Corporate Tax Rate — One major change that went into effect in 2018 is the overall reduction of corporate tax rates to 21 percent, from the previous four-tiered structure that went up to 35 percent.
Standard Tax Deductions — For most tax filers, standard tax deductions doubled under the new tax rules, increasing to $12,000 for individuals; $18,000 for heads of households; and $24,000 for married couples filing together.
Income Tax Brackets — Tax professional, Ghada Burton, explains that the seven U.S. tax brackets continue, but the new rules alter the income requirements for each bracket, in most cases reducing individual income tax rates. These tax bracket changes are set to expire in 2027.
Business Owners and Independent Contractors — There are new qualified business income deductions for these U.S. filers, which can now be used as personal deductions both when you itemize your tax deductions or use the standard deduction.
Savings on Education Expenses — One major change was made to 529 savings plans, which were previously only allowed for higher education investments. According to Ghada Burton, you can now use 529 savings plans to fund private K-12 education expenses as well, adding up to $10,000 per year per student for these more general education costs.
Personal Health Insurance Individual Mandate — Another change occurred to the ACA individual health insurance mandate, which was removed in 2018. In 2019, individuals who did not purchase health insurance will no longer be subject to fines.
Child Tax Credit — The new law doubled the child tax credit from $1,000 per child under 17 to $2,000 per child under 17. This rule change will remain in effect until 2025.
Estate Taxes — The law also doubles the estate tax benefit, also called “death taxes,” with exemptions increasing to $11.2 million from $5.49 million.
Selling your Home — Are you looking to sell your home in 2019? The tax changes will affect this income as well. Ghada Burton explains that homeowners who sell their homes in 2019 can still receive between $250,000 and $500,000 in exemptions. The proposed length of time a homeowner would need to live in primary residence to be eligible for the $250,000 exclusion if filing single and $500,000 if married filing jointly remains at two years out of five. The rules surrounding business use of your residence are complex and would impact the amount of capital gains claimed upon sale, recapture of depreciation claimed etc. so consult with your tax advisor.
Mortgage Caps — If your primary home mortgage was purchased before December 2017, you can still deduct all your mortgage interest paid on the first $1 million in acquisition indebtedness. For new mortgages; however, interest deductions are limited to $750,000 value of acquisition indebtedness. In addition, home equity loans, regardless of when they were obtained, cannot be deducted if they were used for purchases or debt payments; but they can be deducted if used for substantial home improvements.
Moving Expenses — Moving expenses are no longer tax deductible, from now until 2025, except for members of the military.
State and Local Taxes — Sometimes referred to as SALT deductions, the amount you can deduct for state and local taxes, including income, sales, and property tax, is now limited to $10,000. Previously, there were no limits, which benefited residents in high-tax states.
Thefts and Losses — Ghada Burton notes that under the new tax rules, deductions for losses due to theft are no longer allowed (for things like cars, household items, jewelry). These loses can be declared if they occurred in a federally declared disaster, like the wildfires in California. This disaster declaration information can be found on the FEMA website.
Things that Didn’t Change — Some items that stayed the same include adoption credit, expense deductions for teachers, electric car credits, and student loan deductions.