The new tax code was signed into law on December 22nd, 2017 to become effective for the 2018 tax year. Here we compare some of the major provisions of the new law with the old tax code.
There still are seven individual income tax brackets, but the income thresholds and rates for the brackets have changed: (New bracket thresholds are in bold type)
Single Filers Married, Filing Jointly Taxable Income: Taxable Income:
Brackets: 10% up to $9325 / $9525 Brackets: 10% up to $18,650 / $19,050
12% $9526--$38700 12% $19050--$77,400
15% $9326--$37,950 15% $18651--$75,900
22% $38,701--$82,500 22% $77,401--$165,000
24% $82,501--$157,00 24% $165,001--$315,000
25% $37951--$91,900 25% $75,901--$153,100
28% $91,901--$191,650 28% $153101--$233,350
32% $157,501--$200,000 32% $315,001--$400,000
33% $191,651--$416,700 33% $233,351--$416,700
35% $416,701--$418,400 35% $416,701--$470,700
35% $200,001--$500,000 35% $400,001--$600,000
37% Over $500,000 37% Over $600,000
39.6% Over $418,400 39.6% Over $470,700
Individual Alternative Minimum Tax:
Taxpayers earning above certain amounts must calculate their taxes using an alternative calculation and pay the one that shows the highest amount. The previous law provided a $54,300 exemption for single filers that began phasing out at $120,700. For joint filers the exemption was $84,500 that began to phase out at $160,900.
--The new law will increase the exemption for single filers to $70,300 and $109,400 for joint filers and will phase out for taxpayers at $500,000 and $1,000,000 respectively.
Standard Deduction:
The standard deduction is the amount that you can deduct from your income before calculating your tax liability if you do not itemize deductions. This deduction under the previous law was $6,350 for single taxpayers; $9,350 for heads of households; and $12,700 for married joint filers.
--The new law will increase the deduction to $12,000 for single taxpayers; $18,000 for heads of households, and $24,000 for married joint filers.
Personal Exemption:
This exemption is the amount that you can deduct from your income for every taxpayer and most dependents claimed on your tax return. The previous law provided an exemption equal to $4,050 per person.
--The new law eliminates this exemption altogether.
Child Tax Credit:
Under the previous law married couples filing jointly earning less than $110,000 could receive a credit up to $1,000 for each child under age 17 claimed as a dependent on their tax return. For married couples filing separately the income limit was $55,000 and $75,000 for single, head of household, and qualifying widow/widower filers.
--The new law increases the credit up to $2,000 per child and the first $1,400 is “refundable” meaning you will receive it even if it reduces your tax liability below zero. The income thresholds for this credit are increased to $400,000 for couples filing jointly.
State and Local Tax Deductions:
Under the previous law taxpayers choosing to itemize their deductions instead of taking the standard deduction could deduct state and local property, and real estate taxes, and either state and local or sales taxes.
--The new law will cap these itemized deductions at $10,000.
Mortgage Deduction:
Under the previous law taxpayer who itemize deductions could deduct interest on mortgage debt up to $1,100,000, which could include up to $100,000 of home equity debt.
--The new law will not change the deduction for existing mortgage holders, but will reduce the debt limit to $750,000 for new debt incurred after December 31, 2017. No deduction is permitted for existing and new interest on home equity debt beginning January 1, 2018.
Medical Expense Deduction:
Under the previous law taxpayers who itemize deductions could deduct medical expenses that exceed 10% of their adjusted gross income.
--The new law will permit medical expenses that exceed 7.5% of their adjusted gross income.
Limits on Itemized Deductions:
Under the previous law itemized deductions could be limited and total itemized deductions could be reduced if your adjusted gross income exceeded $313,800 for married couples filing jointly or qualifying widows; $261,500 for single filers; $287650 for heads of household; and $156,900 for married couples filing separately.
--The new law repeals the itemized deduction limits.
Inflation Rate Adjustments:
Under the previous law The Consumer Price Index for urban consumers was used to adjust tax bracket thresholds and other tax provisions for inflation.
--The new law will use the Chained Consumer Price Index that rises more slowly and is considered to be more accurate in measuring the effects of inflation.
Capital Gains Tax Rate:
Capital gains are the profits realized from the sale of capital assets such as stocks or real estate. Under the previous law assets that were held for more than one year where considered “long-term” capital gains that had tax rates equal to 0, 15, and 20 depending on the tax rate for your “ordinary” income.
--The new law makes no changes.
Estate Taxes:
The previous law applied a 40% tax rate on estates that were valued at more than $5,490,000 up to $11,000,000 for couples.
--The new law applies a 40% rate on estates valued at more than $11,200,00 up to $22,400,000 for couples.
Corporate Taxes:
The previous law the top corporate tax rate was 35%. Corporations also were subject to alternative minimum tax calculations.
--The new law reduces the top corporate tax rate to 21% and repeals the corporate alternative minimum tax provisions.
Pass-Through Business Taxes:
The previous law required business that were organized as sole proprietorships, LLCs, and partnerships that are not subject to paying corporate income tax to pay individual income tax on their share of business income that passes through to the owners using the same tax rates that individuals use.
--The new law permits such owners to take a 20% deduction on income that passes through to them limited to $157,500 for single filers and $315,000 for married joint filers.
Many of the provisions of the new law expire at various times in the future that would cause the old tax law provisions to be applied again. When those expiration times come it is likely that most if not all of the new provisions will be renewed with or without modifications.
The changes under the new tax code are projected to reduce federal tax revenues by an estimated $1,460,000,000 (1.46 trillion) dollars over the next ten years. It is hoped that it will produce additional economic growth that will more than make up that amount.
Greg Tinaglia
Last Updated: 01/18/2018