If you follow the mainstream or social media news, you likely know the new Republican tax bill, which recently passed both the House and Senate, is a potential game changer for tax planning. Known as the “Tax Cuts and Jobs Act,” both houses of Congress passed different versions of the bill, so it’s unclear what the final legislation will include, or if it will even pass. If passed, the new bill is a potential game changer for your family's tax strategy.
That said, both versions include some common elements, and since we’re close to year end, it’s important to understand what these potential changes might mean for your family’s tax planning. For example, if you are a W-2 employee, you may want to start a side-line business in 2018 to offset some of the potential negative impact of the tax law changes, and we may be able to help you with that. If you have specific questions on personal impact to you, contact us prior to year-end so we can discuss.
You can use this knowledge to implement tax-saving strategies—by potentially deferring income to 2018 or accelerating deductions into 2017—if you take action before year end.
But keep in mind: None of this is set in stone, yet. By the time this article is published, we’ll certainly have more information. And one thing is for sure, knowledgeable, proactive planning is always wise, especially when supported by a trusted advisor who can guide you.
Both the House and Senate versions of the bill increase the standard deductions to nearly identical levels: $12,200 for singles and $24,400 for joint filers in the House and $12,000 and $24,000 in the Senate. Both plans eliminate personal exemptions, though, so those with dependents won’t see quite as much savings. And if you’ve deducted medical expenses and/or charitable donations in the past, that would be eliminated. So if you donate to charity and are able to write off your donations because you itemize your expenses rather than take the standard deduction, consider increasing your charitable donations this year, as they may not be deductible next year.
The bill keeps the mortgage interest deduction, but adds some new limits. Current homeowners can continue deducting mortgage interest up to $1 million. For new home buyers, however, the deduction will be capped at $500,000. And the bill only allows homeowners to take the deduction for their primary residence, not vacation and/or second homes. What’s more, the bill no longer permits taxpayers to deduct the interest on home equity loans or lines of credit.
Those with young children will see an increase in the child tax credit, too. The House raises the credit to $1,600 per child, with a phase-out for joint filers with an income of $230,000. The Senate plan boosts the child credit to $2,000 per child and sets the phase-out at $500,000.
The House bill sets in motion a full repeal of the estate tax by 2024, but it boosts the exemption from its current $5.49 million to $10 million starting in 2018. The Senate doesn’t repeal the estate tax, but it does significantly raise the exemption to $11.2 million. Chances are you aren’t impacted by the current estate tax, but if you are, contact us so we can take advantage of potential opportunities to save going into 2018, as it’s likely that the estate tax exemption amount will be rolled back after future elections.
Both bills repeal deductions for state and local income taxes. However, they do still allow for up to a $10,000 deduction for state and local property taxes.
In terms of the itemized medical expense deduction, the House plans to totally eliminate it, while the Senate’s bill keeps it and reduces the income threshold above which medical expenses are deductible from 10% to 7.5%
To review your tax strategies and possibly benefit from these potential changes, contact us as your Personal Family Lawyer® right away—time is of the essence! And, at the same time, it’s never too late to start planning for next year. So even if it’s after the 1st, contact us to begin planning for next year now. Schedule online.