With the new Tax Law (TCJA) or Tax Cuts and Jobs Act, millions of Taxpayers are wondering which tax breaks they will still be able to use in 2018, and which ones have been eliminated. To help answer some of these questions, Chris Bufis, Loan Officer with NewTowne Mortgage in Norfolk, created a guide to help taxpayers understand how they will be affected by the new tax law.
2018 Federal Income Tax Bracket
This will affect all Taxpayers. Overall you can see most rates have decreased with the largest decrease for taxpayers with $165,000 to $315,000 taxable income if married filing jointly.
Standard Deduction Amounts
Taxpayers that do not itemize their deductions should see a huge benefit. This is because the Standard Deduction amounts are increasing.
Personal and Dependent Exemptions
These increases in Standard Deductions come at a price though. While they are significantly higher, the personal and dependent exemptions, which would have been $4,150 each in 2018, have been eliminated. This will work out better for some taxpayers but not all. If you have a big family with lots of dependents, you might not like this change.
Child Tax Credit
Under the new law, the Child Tax Credit is doubled. Up from $1,000 per qualifying child to $2,000. Additionally, up to $1,400 of taxpayer’s credit can be refundable meaning taxpayers can collect it even if they don’t actually owe any federal income tax.
Changes in State and Local Tax Deductions (SALT Deduction)
Prior to 2018, you could deduct an unlimited amount of state and local income and property taxes or you could choose to deduct your state and local general sales taxes paid instead. Under the new Law, this deduction will be limited to a total amount of $10,000 if using married filing jointly status. This deduction can be for either state and local income and property taxes or state and local general sales taxes paid.
Changes in Mortgage Interest Deductions
Overall, mortgage interest is still deductible if you choose to itemize, what changed, is the threshold. Previously, taxpayers could deduct mortgage interest on $1 million of qualified residence loans. Under the new Law, taxpayers may only deduct interest on $750,000 of qualified residence loans. These amounts are half if married filing separately and only apply to the combined amount of loans used to build, buy or substantially improve primary residences or second homes.
Home Equity Line of Credit Loans (HELOCS)
One common misconception is that interest paid on home equity loans, home equity lines of credit (HELOC) or second mortgages is no longer deductible. The new law still allows the deduction for interest paid on home equity loans and lines of credit, as long as they are used to build, buy or substantially improve the taxpayer’s home which secures the loan.
Job Expenses and Certain Miscellaneous Deductions
Under prior law, taxpayers were allowed to deduct certain miscellaneous expenses that exceeded 2% of their adjusted gross income (AGI). Here are some deductions which are no longer allowed:
- Casualty and theft losses (except those attributable to a federally declared disaster)
- Unreimbursed employee expenses
- Tax preparation expenses
- Other miscellaneous deductions previously subject to the 2% AGI cap
- Moving expenses
- Employer-subsidized parking and transportation reimbursement
The scenarios below all assume a Married Couple with 2 children. Assumptions are made for estimates on a $250,000 Mortgage with PMI and a combined household income of $100,000. The comparison compares both itemized and standard deductions for 2017 and under the new tax law for 2018. As always, seek tax advice from your tax professional.
Chris Bufis is a loan officer with NewTowne Mortgage in Norfolk, Virginia. He can be reached via phone at 757-450-6608, or through email at [email protected] NMLS #697543.
The information contained herein (including but not limited to any description of TowneBank Mortgage, its affiliates and its lending programs and products, eligibility criteria, interest rates, fees and all other loan terms) is subject to change without notice. This is not a commitment to lend. TowneBank Mortgage is not a tax consultant. Contact your tax advisor for more details.