Tax Cuts & Job Act - 2018 & State of New York Changes

Standard Deductions:

Single                        $12,000

Married Filing Joint    $24,000

Head of Household    $18,000

Addition for age 65 or older or blind:

  • $1300 per person - Married Filing Joint (MFJ), Qualifying Widower (QW) & Married Filing Separate (MFS)
  • $1600 per person - Single or Head of Household

Personal exemptions: The act repealed all personal exemptions through 2025. The withholding rules will be modified to reflect the fact that individuals can no longer claim personal exemptions.

Itemized deductions:

Mortgage interest: The home mortgage interest deduction was modified to reduce the limit on acquisition indebtedness to $750,000 (from the prior-law limit of $1 million).

A taxpayer who entered into a binding written contract before Dec. 15, 2017, to close on the purchase of a principal residence before Jan. 1, 2018, and who purchases that residence before April 1, 2018, will be considered to have incurred acquisition indebtedness prior to Dec. 15, 2017, under this provision, meaning that he or she will be allowed the prior-law $1 million limit.

Home Equity Line of Credit: No home equity interest deduction can be claimed unless the taxpayercan document expenses to buy, build or improve home.   Interest can not be used for personal living expenses. (i.e. credit cards, student loans, car loans, etc.)

State and local taxes: Individuals are allowed to deduct up to $10,000 ($5,000 for married taxpayers filing separately) in state and local income and/or property taxes.

Casualty losses: Taxpayers can take a deduction for casualty losses only if the loss is attributable to a presidentially declared disaster.  The taxpayer is required to include the FEMA number and the location of property when claiming the loss.

Gambling losses: Clarified that the term “losses from wagering transactions” in Sec. 165(d) includes any otherwise allowable deduction incurred in carrying on a wagering transaction. This is intended to clarify that the limitation of losses from wagering transactions applies not only to the actual costs of wagers, but also to other expenses the taxpayer incurred  in connection with his or her gambling activity.

Charitable contributions: Increased the income-based percentage limit for charitable contributions of cash to public charities to 60%. It also denies a charitable deduction for payments made for college athletic event seating rights. Finally, it repealed the statutory provision that provides an exception to the contemporaneous written acknowledgment requirement for certain contributions that are reported on the donee organization’s return — a prior-law provision that had never been put in effect because regulations were never issued.

Miscellaneous itemized deductions: All miscellaneous itemized deductions subject to the 2% floor under current law are repealed through 2025.  Includes tax prep fees, unreimbursed job expenses, hobby expenses, investment expenses, not for profit rental expenses and legal fees for taxable social security.

Other provisions for individuals

Alimony: For any divorce or separation agreement executed after Dec. 31, 2018, alimony and separate maintenance payments are not deductible by the payer spouse. It repealed the provisions that provided that those payments were includible in income by the payee spouse.

Moving expenses: The moving expense deduction is repealed through 2025, except for members of the armed forces on active duty who move pursuant to a military order and incident to a permanent change of station.

Child Tax

Credit increases to $2000 but only the first $1,400 is refundable.  The threshold at which the credit begins to phase out was increased to $400,000 for married taxpayers filing a joint return and $200,000 for other taxpayers.

Family credit of $500 nonrefundable credit for qualifying dependents who are not qualifying children.

Education provisions

  • The act modifies Sec. 529 plans to allow them to distribute no more than $10,000 in expenses for tuition incurred during the tax year at an elementary or secondary school. This limitation applies on a per-student basis, rather than on a per-account basis.
  • The act modified the exclusion of student loan discharges from gross income by including within the exclusion certain discharges on account of death or disability.

Kiddie Tax Rates are simplified by not having to compare to the parent's tax rate, but likely to result in higher taxes as now taxed at the estate and trust tax rates.

Individual AMT

For tax years beginning after Dec. 31, 2017, and beginning before Jan. 1, 2026, the AMT exemption amount increases to $109,400 for married taxpayers filing a joint return (half this amount for married taxpayers filing a separate return) and $70,300 for all other taxpayers (other than estates and trusts). The phaseout thresholds are increased to $1 million for married taxpayers filing a joint return and $500,000 for all other taxpayers (other than estates and trusts). The exemption and threshold amounts will be indexed for inflation.

Individual mandate

The act reduces to zero the amount of the penalty under the ACA (Affordable Care Act) imposed on taxpayers who do not obtain health insurance that provides at least minimum essential coverage, effective after 2018.

 

 

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Estates and trusts:

Taxable Income Over

But Not Over

Is Taxed At

$0

$2,550

10%

$2,550

$9,150

24%

$9,150

$12,500

35%

$12,500

 

37%


Special brackets will apply for certain children with unearned income.

 Capital Gain Rates:

Single and Married Separate

Taxable income over

But not over

Is taxed at

$0

$38,600

0%

$38,600

$239,500

15%

$239,500

 

20%

 

Married Filing Joint

Taxable income over

But not over

Is taxed at

$0

$77,200

0%

$77,200

$479,000

15%

$479,000

 

20%

 

Head of Household

Taxable income over

But not over

Is taxed at

$0

$51,700

0%

$51,700

$452,400

15%

$452,400

 

20%

 

 New York Changes

New Form IT-196 - Itemized Deductions:  Taxpayers may itemize for New York, even it they use the standard deduction for the federal return.

  • No $10,000 limitation on real property tax deduction.
  • Medical expenses may be deducted above 10% of the Federal adjusted gross income (AGI).
  • No change to the mortgage interest deductibility.
  • No change in the limitation on charitable deductions.
  • Deduction of miscellaneous deductions above 2% of the AGI maintained to include job expenses removed for the Federal itemization.

Alimony:  Alimony is still taxable and deuctible.

Child & Dependent Care Credit:  The maximum amount of qualified expenses for individuals with 3 or more qualifying persons is increased.  There is an increase in the credit for AGI between $50,000 and $149,000.