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Congress passed the Tax Cuts and Jobs Act on December 20, 2017, marking the most comprehensive overhaul of the tax code since 1986. The new law will go into effect on January 1, 2018, and contains major changes for individuals and businesses. This article is a summary of the key changes to individuals. All of the changes affecting individuals would expire after 2025. At that time, if no future Congress extend the provisions, the individual tax provisions would sunset, and the law would revert to its current state.

TAX BRACKETS

Retains the current structure of seven tax brackets, but modifies the rates to: 10%, 12%, 22%, 24%, 32%, 35%, and 37%. The top rate of 37% applies to individuals with annual earned income of $500,000 or more, or $600,000 for married couples filing jointly.

CAPITAL GAINS AND DIVIDENDS

Preferential rates on capital gains and qualified dividends retained.

STANDARD DEDUCTION

Increased through 2025 to $24,000 for married taxpayers filing jointly, $18,000 for heads of households, and $12,000 for all other individuals. The standard deduction will be indexed for inflation.

PERSONAL EXEMPTIONS

Deductions for personal exemptions are repealed through 2025.

CHILD TAX CREDIT

Increased to $2,000 per qualifying child and $500 nonrefundable credit for qualifying non-children dependents through 2025. The $2,000 child tax credit is partially refundable. The phaseout threshold would be increased to $400,000 for married taxpayer filing jointly and $200,000 for other taxpayers.

INDIVIDUAL MANDATE

The individual health care mandate under Obamacare is eliminated. The bill will reduce to $0 the penalty amount imposed on the taxpayer who does not obtain insurance that provides at least minimum essential coverage. This would be effective January 1, 2019.

401(K) PLANS

Pretax contributions to 401(k) plans is retained.

HEALTH SAVINGS ACCOUNTS

Deductions for contributions to health savings accounts is retained.

ESTATE TAX

The estate tax exemption amount has doubled to almost $11 million per individual, allowing married filing jointly couples to pass up to $22 million to their heirs without paying the estate tax.

ITEMIZED DEDUCTIONS

MORTGAGE INTEREST EXPENSE

Deduction is retained as an itemized deduction but would be modified to reduce the limit on acquisition indebtedness to $750,000, from the current $1 million. A taxpayer who enters into a contract prior to December 15, 2017, to close on the purchase of a principal residence before January 1, 2018, and who purchases that residence before April 1, 2018, will be considered to have incurred acquisition indebtedness prior to December 15, 2017 and therefore be allowed the current law limitation of $1 million.

HOME EQUITY LOAN INTEREST EXPENSE

Interest expense deduction for home equity indebtedness is repealed through 2025.

PERSONAL CASUALTY AND THEFT LOSSES

Deduction for personal casualty and theft losses suspended through 2025. Personal casualty losses incurred in a Federally declared disaster area are exempt from the suspension.

MEDICAL EXPENSES

The Threshold to deduct medical expenses is reduced to 7.5% of AGI for all taxpayers for years after December 31, 2016, and before January 1, 2019.

LIMITATION ON ITEMIZED DEDUCTIONS

The “Pease limitation”, which limited itemized deductions based on Adjusted Gross Income is repealed.

MISCELLANEOUS ITEMIZED DEDUCTIONS

Deduction for miscellaneous itemized deductions subject to 2% of AGI floor is suspended through 2025.

STATE AND LOCAL TAXES

The State and Local tax deduction, commonly referred to as the SALT deduction is limited to $10,000 through 2025. The limitation applies to the sum of nonbusiness state and local income tax, sales tax, and property tax deductions. Taxpayers cannot take a deduction in 2017 for prepaid 2018 state income and property taxes.

CHARITABLE CONTRIBUTIONS

Charitable contribution deductions are retained, the AGI limitation for cash donation to public charities increased to 60%.

EDUCATION SECTION 529 PLANS

Eligible section 529 plan expenses will be modified to include up to $10,000 in expenses for tuition incurred at an elementary or secondary school. Certain homeschool expenses would also qualify as eligible expenses.

STUDENT LOAN INTEREST

Student loan interest deduction retained in its current form.

EDUCATION CREDITS AND DEDUCTIONS

American Opportunity Tax Credit, Hope Scholarship Credit, and Lifetime Learning Credit are retained to assist with the burden of educational costs. The tuition and fees deduction is also retained in its current form.

OTHER CHANGES ALIMONY

Alimony payment is no longer deductible by the payor and not included in income by the payee for any divorce or separation agreement executed after December 31, 2018.

MOVING EXPENSES

Moving expenses are no longer a deductible above the line expense through 2025.

MOVING EXPENSE REIMBURSEMENT

Moving expenses reimbursed, by the employer to the employee, will no longer be excluded from gross income and wages through 2025.

ALTERNATIVE MINIMUM TAX

The exemption amount and phase-out thresholds of the individual Alternative Minimum Tax are increased for years beginning after December 31, 2017, and before January 1, 2026. The exemption amount is increased to $109,400 for married filing a joint return and $70,300 for single filers. The phase-out thresholds have increased to $1 million for married filing a joint return and $500,000 for other taxpayers (other than estates and trusts).