The tax law has been revised. Here are some provisions that might impact your tax bill:
- A Higher Standard Deduction – Approximately, 70 percent or so of households do not file an itemized federal tax return. The standard deduction in new tax bill nearly doubles the standard deduction. It goes to $12,000 for an individual, $18,000 for a head of household and $24,000 for married couples filing a joint tax return. This may reduce the federal tax bill for many of you, but not for all. To some, it will mean an increase.
- A Reduction in Deductibility of State and Local Taxes –The new tax bill limits a household’s combined deduction of state and local taxes (income, sales, and property) to $10,000. For residents of states with high income taxes, especially those with sizable property tax bills, they may face a higher tax bill. It does not matter whether you are single or married.
- Mortgage Interest – Mortgage interest deductions will only be allowed on mortgages of $750,000 or less. The deduction of interest on Home Equity Loans or Home Equity Lines of Credit is gone, no matter what for you used the money.
- A Larger Child Tax Credit –The child tax credit goes up from $1,000 to $2,000 per child. For filers who do not have a tax bill that offsets the value of the credit, it goes to $1,400, compared to $1,000 under the old law. The income limits to claim the credit are also increased. The new bill gets rid of personal exemptions. The personal exemptions of $4,050 per person is gone. Therefore, even after factoring in the higher standard deduction, families who have multiple children might face a higher tax bill.
- Medical Expense Deduction – This was at risk of disappearing. However, the medical expense deduction has been saved, and even rolled back to provide more help for households with high medical expenses. A deduction of qualified medical expenses that exceed 7.5% of adjusted gross income will now be allowed. This is an improvement for filers under age 65 who have had to meet a 10% threshold since 2013. However, this provision is only in place for 2017 and 2018, after which it will return to 10% of AGI.
- Student Loan Interest Deduction –This was also on the chopping block. However, the final version of the tax bill allows borrowers to deduct up to $2,500 a year in student loan interest, up to certain income limits.
Whether you will end up being better off on your final tax bill won’t be known until you actually file your taxes. The corporations did win big on the new tax bill. The hope is to get them to bring back jobs to the US by giving them tax breaks. This would mean more jobs for Americans, which would be huge for many of the unemployed. We can only hope that the corporations will actually do what is right. However, judging by the bailout of GM and other car manufacturers, I seriously doubt this will happen. GM was bailed out with taxpayer dollars. Then, they built their cars in foreign nations.