Highlights of the new Tax Act for 2018

Here are some highlights of the new Tax Act for 2018- more to follow in the coming months

Tax Brackets and Tax Rates
There are seven tax rates: 10%, 12%, 22%, 24%, 32%, 35% and 37%.

Personal Exemptions
The personal exemption is repealed.

Child Tax Credit
The child tax credit will increase to $2,000 per qualifying child and will be refundable up to $1,400, subject to phaseouts. To receive the refundable portion of the child tax credit, a taxpayer must include a social security number for each qualifying child claimed on the tax return.

Also included is a temporary $500 nonrefundable credit for other qualifying dependents who are not qualifying children.

Phaseouts, which are not indexed for inflation, will begin with adjusted gross income of more than $400,000 for married taxpayers filing jointly and more than $200,000 for all other taxpayers.

Itemized Deductions
With the exception of state and local income taxes, mortgage interest, medical expenses, disaster losses, charitable contributions and other deductions not subject to the 2% floor, all other itemized deductions are repealed. The overall limitation on itemized deductions for upper-income individuals is also repealed.

State and Local Taxes
Taxpayers can claim a deduction for a combination of state and local income tax, sales tax, or real property tax. The aggregate deduction is capped at $10,000. Foreign real property taxes are no longer deductible.

Under this provision, an individual may not claim an itemized deduction in 2017 on a prepayment of income tax for a future taxable year in order to avoid the dollar limitation applicable for taxable years beginning after 2017.

Medical Expenses
For 2017 through 2018, expenses exceeding 7.5% of income are deductible; that percentage increases to 10% in 2019. Under this provision, these thresholds also apply for determining AMT.

Charitable Contributions
Taxpayers who are able to itemize deductions can include charitable contributions. The current limitation of 50% of income is increased to 60%.

The standard mileage rate with regard to the use of a taxpayer’s automobile for charitable purposes is indexed for inflation in taxable years beginning after December 31, 2017.

Mortgage Interest
The deduction for mortgage interest is capped at $750,000 of debt. The interest deduction is allowed on a first or second home. The interest on home equity loans will no longer be deductible. Interest on up to $1 million of acquisition debt for loans prior to December 15, 2017 is grandfathered.