►Individual tax brackets: The bill calls for seven individual brackets, with a top rate of 37 percent, which married people filing jointly will pay on income they earn in excess of $600,000. If you’re single, the top rate applies to income earned beyond $500,000.
►Credits, standard deductions: The standard tax deduction is temporarily increased to $12,000 for singles and $24,000 for married couples filing joint returns. The child tax credit is increased to $2,000 for each child — and up to $1,400 of that can be delivered in the form of refundable credit, which means taxpayers can receive money back even if they have no tax liability. (Taxpayers may also reduce their tax bill by up to $500 for other dependents who are not children.) In 2025, the deductions and exemptions will revert to current law.
►Mortgages, state and local taxes: Taxpayers may deduct only up to $10,000 total for state and local taxes, which may include any combination, including property taxes (also sales taxes). But don’t try to prepay your state and local income taxes before year-end to circumvent the new limit. The proposal won’t allow it. You can also deduct the interest paid on mortgage debt up to $750,000. But if you bought a property before Dec. 15, you can still deduct interest up to $1 million (the limit under current law). Home equity loan interest is no longer deductible for anyone.
►Medical expenses: In 2017 and 2018, you can deduct out-of-pocket medical costs that exceed 7.5 percent of adjusted gross income.
►Health mandate: The penalty for not signing up for health insurance is reduced to zero, which, in practice, means that fewer healthy individuals may sign up for coverage — and that is expected to lead to higher premiums for people who do not qualify for premium subsidies.
►Alternative minimum tax: The AMT is an alternative way of calculating income taxes due, to make sure that people with lots of deductions don’t pay too little. It will not go away, but through 2025, it will apply to fewer people and kick in at higher income levels.
►Estate taxes: In general, estates pay 40 percent federal tax on inherited property, but the baseline exemption amount doubles to $10 million and is indexed to inflation occurring after 2011. It applies to the estates of people who die after Dec. 31 but before Jan. 1, 2026 (and also to gifts made during that time frame).
►Pass-through businesses: Starting next year and before Jan. 1, 2026, individuals can generally deduct 20 percent of their qualified business income from a partnership, S corporation and sole proprietorship. There are limits, however, including a phaseout for the deduction that begins at $157,500 of individual income and $315,000 of income for couples who file their tax returns jointly.
►529 plans: Nothing changes with higher education expenses, but you will also be able to withdraw up to $10,000 each year, per child, to pay for private or religious school and receive the same tax benefits. Families participating in home schooling can also take out up to $10,000 a year to use for educational expenses.
►Fire and flood losses: If you are a victim of a house fire, flood, burglary, or similar event, you can generally deduct losses — as long as each loss is more than $100 and all losses collectively exceed 10 percent of your adjustable gross income. But starting next year, taxpayers can deduct these costs only if the loss occurred during an event that the president officially declared to be a disaster.
►Alimony: Divorce would become a bit more burdensome for the ex-spouse who pays alimony because it would no longer be a deductible expense. But the person receiving the payments would no longer have to pay tax on the income received. The change would take effect for divorce and separation agreements executed starting in 2019.
►Moving expenses: Moving costs would generally no longer be a deductible expense starting in 2018, though it allows some exceptions for members of the military.
►Tax preparation: Taxpayers will not be able to deduct the amount their tax preparation specialists billed the or any similar tax-related expenses, like software you purchase and the fee to file your forms electronically.
►Riding a bicycle to work: No longer deductible.
►New inflation counter: The bill would change the cost-of-living measure to what’s known as the chained Consumer Price Index, which generally rises more slowly than what is used now. This would slow the speed at which tax brackets grow with inflation.
►Gambling losses: The bill clarifies that people who also deduct wagering expenses, such as the cost of travel to and from a casino, must add those expenses to their total losses before comparing that sum to their total taxable winnings for the purpose of making the deduction. This clarification does not apply to expenses incurred beyond 2025.
►Discharged student loan debt: Discharged debt in the event of death or total and permanent disability will no longer be taxable. The provision expires after 2025.
►What did not change: Student loan interest, adoption assistance programs, dependent care accounts, tuition waivers, employer-paid tuition, capital gains when selling a home, teacher deduction, 401(k) tax break, electric cars, Archer medical savings accounts, and selling stock and mutual funds.
SOURCE: New York Times
