Tax Changes

Capital gains tax for top earners

While there are no major tax law changes for , there are inflation adjustments and other routine changes that may affect you. Especially for top earners, it’s important to take advantage of the tax breaks you’re entitled to. Here are some factors to consider that may help you keep more of your money.

Federal income tax changes

The Tax Cuts and Jobs Act (TCJA) of 2017 made significant changes to the tax rates, tax brackets and deductions and credits. See the tables below for the ordinary income tax brackets. For additional information, please visit the IRS website.

Federal Income Tax Brackets

Single

Tax rates on
Ordinary Income
From To
10% $0 $9,525
12% $9,526 $38,700
22% $38,701 $82,500
24% $82,501 $157,500
32% $157,501 $200,000
35% $200,001 $500,000
37% $500,001 --------

Married filing jointly / Qualifying widow or widower

Tax rates on
Ordinary Income
From To
10% $0 $19,050
12% $19,051 $77,400
22% $77,401 $165,000
24% $165,001 $315,000
32% $315,001 $400,000
35% $400,001 $600,000
37% $600,001 --------

Long-term capital gains and qualified dividends

For the capital gains tax bracket see this webpage, Tax rates for capital gains and dividends.

The alternative minimum tax (AMT)

The new law increases both the exemption and the exemption phase-out amount for the individual AMT. Beginning in and ending in 2025, the AMT exemption amount increases to $109,400 for married taxpayers filing a joint return and $70,300 for all other taxpayers. The phase-out thresholds increase to $1 million for married taxpayers filing a joint return and $500,000 for all other taxpayers.

These changes should benefit many middle- and high-income households that were previously affected by this tax.

Increased standard deductions for head-of-household filers

The new tax law nearly doubles the standard deduction, to $12,000 from $6,350 for single filers, and to $24,000 from $12,700 for married filers. About 70% of taxpayers claim the standard deduction, which includes most low- and middle-income households. The increased standard deduction combined with the new increased child tax credit (read more below) should lower the tax bills of the majority of these households.

Some itemized deductions have been reduced or eliminated

The new law reduces or eliminates many itemized deductions in favor of a higher standard deduction. These changes include the following:

  • The deduction for state and local income taxes, property taxes, and real estate taxes is capped at $10,000.
  • The mortgage interest deduction is limited to $750,000 of indebtedness. However, those who had $1,000,000 of home mortgage debt prior to December 12, 2017, will still be able to deduct the interest on that loan.
  • All miscellaneous itemized deductions are eliminated. This includes deductions for tax preparation fees, investment advisor fees and unreimbursed job expenses.

Here are the itemized deductions that remain relatively unchanged and even slightly improved:

  • Medical expenses: The new law preserves the deduction for medical expenses and temporarily reduces the limitation from 10% to 7.5% of adjusted gross income for tax years 2017 and 2018. Beginning in 2019, only medical expenses that exceed 10% of adjusted gross income will be deductible.
  • Charitable donations: The new law preserves all the major charitable donation deductions and increases the cash donation limit to 60% from 50% of adjusted gross income.

All else being equal, if you’re in a high-income household in a high-tax state, with a large mortgage and high property taxes, these changes could end up increasing your tax liability. However, some of the negative impact may be offset by the changes to the tax rates and brackets.

If you don't normally itemize your deductions—or your itemized deductions have traditionally been less than the new standard deduction—these changes shouldn't be an issue, and the increased standard deduction should end up benefiting you.

Personal exemptions

The new law eliminates the personal exemption and dependent deduction. However, when combined with the increased standard deduction and increased child tax credit, lower- and middle-income households should see a net benefit despite the elimination of these deductions.

However, higher-income taxpayers could see an increased tax bill from this change if they have large families and don't qualify for the child tax credit.

Higher health savings contribution limits for families

The maximum contribution of $ 3,450 for an individual health savings account (HSA) increased $50 over last year, those with family health insurance policies can contribute up to $6,900.

Increase in the child tax credit

The new tax law increases the child tax credit to $2,000 from $1,000, and the income level of households eligible for the credit has also increased. In the past, only households with incomes below $75,000 for single filers or $110,000 for joint filers qualified for this credit. Now, households with incomes below $200,000 as a single filer or $400,000 as a joint filer can claim this tax credit.

Generally, tax credits are better than tax deductions, because credits reduce your taxes dollar for dollar, while deductions only lower your taxable income. This change should benefit many low- and middle-income households with children.

Rules for fixed income securities

Properly accounting for the cost basis of a fixed income security is considerably more difficult than it is for an equity security. Cost basis can be affected by accruals of income as well as by elections made by the holder of the fixed income security. The IRS made many changes in the final regulations to help align what a broker would report on Form 1099-B with what a client would report on his or her tax return. For more details, visit the IRS website.

Increased estate tax exemption

In , the unified estate and gift tax exemption is $11.18 million.

Additional Resources

Current tax rates and rules

Get more information on tax rates, laws, and rules that apply to your taxes.

New tax laws for 2018

How the new tax law will affect your 2018 taxes.

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