Tax Reform and What It Means for Your Personal Taxes in 2019
President Trump, when he was on the campaign trail, promised that he would push for tax reform legislation. On December 22, 2O17, he signed the Tax Cut and Jobs Act into law, the first major tax reform in 31 years. The new law makes many changes to the tax code. Every taxpayer is impacted. A highlight of the changes follows:
Tax rates. Tax rates are reduced. The top rate is reduced from 39.6% to 37%. Lower rates are also reduced.
Exemptions and the child tax credit. The deduction for personal exemptions is eliminated. An expanded child tax credit will help make up for the loss of personal exemptions for some families. The credit is increased to $2,000 (from $1,000) for qualifying children under 17. For children 17 and older and for other dependents, the credit is $500.
2019 Standard deduction. The new tax reform law doubled the standard deduction. The higher standard deduction ($12,200 for singles, $18,350 for heads of household, and $24,400 for married filing joint) means that fewer taxpayers will benefit from itemizing deductions.
Itemized deductions. Itemized deductions for all state and local taxes. including property taxes, are capped at $10,000. The limit on mortgage debt for purposes of the mortgage interest deduction is reduced from $1,000,000 to $750,000 for loans made after December 15, 2017. Loans made before December 15, 2017, are grandfathered at the $1,000.000 debt limit. The interest on home equity borrowing is no longer deductible. Miscellaneous itemized deductions subject to the 20% of AGI limitation are not allowed. Miscellaneous itemized deductions lost because of the new law include employee business expenses, investment adviser fees, union dues, and tax preparation fees. Personal casualty losses are not allowed unless the losses were suffered in a federally declared disaster area.
Alimony. The new tax reform law eliminates the alimony deduction for agreements signed after December 31, 2018. Alimony income is not taxable for agreements signed after December 31, 2018. There is no change to the law for agreements signed before January 1, 2019.
Moving expenses. The new tax reform law eliminates the moving expense deduction and makes employer reimbursement of moving expenses taxable to the employee beginning in 2018.
AMT. The new tax reform law temporarily increases the alternative minimum tax (AMT) exemption for tax years 2018 through 2026. The increase in the exemption, as well as the elimination of major tax preferences (exemptions, state taxes above $ 10,000 and miscellaneous itemized deductions), means that fewer people will be subject to AMT under the new law.
Education. The new tax reform law modifies qualified tuition programs - §529 plans. Funds in the 529 plan can now be used to pay for grades K to 12 private school tuition. The above-the-line deduction for college tuition expenses expired at the end of 2017. The American Opportunity and the Lifetime Learning credits continue to be available.
Roth IRA conversions. The new tax reform law repealed the special rule permitting the recharacterization of Roth IRA conversions. A conversion of a traditional IRA to a Roth IRA may still be advisable, but once the conversion is completed, it can't be undone.
These are just a few of the changes included in the Tax Cuts and Jobs Act. Your 2019 taxes are affected. That is guaranteed by the scope of the changes. The degree of impact depends on your personal situation.