Tax Cuts and Jobs Act - Summary of Tax Provisions for 2018

The Tax Cuts and Jobs Act (TCJA), signed into law in December 2017, made significant changes for individual and business taxpayers.

Personal Exemptions 
– For 2018, all personal exemption amounts for taxpayers, spouses and their dependents have been reduced to $0. In prior years, the total personal exemption amount reduced the taxpayer’s taxable income. There will be no reduction in taxable income due to personal exemptions on 2018 tax returns.

Standard Deduction
 – The standard deduction for all filing statuses has increased significantly for 2018 tax returns. For 2018 the standard deduction amount will be $12,000 for Single and Married Filing Separately; $18,000 for Head of Household and $24,000 for Married Filing Joint and Qualifying Widow(er). The additional standard deduction amount for taxpayers that are age 65 or older and/or blind is $1,600 for Single and Head of Household and $1,300 for Married Filing Joint, Married Filing Separate and Qualifying Widow(er). The amount will not change for a dependent filing their own return. The standard deduction and remains $1,050 or $350 plus the dependent’s earned income, not to exceed the standard deduction amount for their filing status.

Itemized Deductions
 – Many common itemized deductions have been changed or eliminated for tax year 2018:

  • The deduction for State and Local Taxes is now limited to $10,000 for all filing statuses other than Married Filing Separate, which is limited to $5,000.
  • The Mortgage Interest Deduction is now limited to mortgage debt on the primary and second home of up to $750,000. Previously the mortgage interest deduction was limited to mortgage debt of up to $1,000,000 or. Mortgage interest from a mortgage obtained under the old limits remains deductible.
  • Home Equity Loan Interest is no longer a separate deduction. Interest from a home equity loan can only be deducted if it meets the requirements for the mortgage interest deduction.
  • Qualified Mortgage Insurance Premiums (PMI) paid is no longer deductible.
  • Medical Expenses can be deducted to the extent that they exceed 7.5% of adjusted gross income. This is the same as in 2017; however, this limitation will rise to 10% starting in 2019.
  • Cash Charitable Contributions can now be deducted up to 60% of adjusted gross income as compared to 50% in prior years.
  • Personal Casualty Losses will only be deductible if the loss is attributed to a federally declared disaster. A casualty loss will be subject to a $100 deductible and only the amount in excess of 10% of adjusted gross income is deductible. Special rules still exist for 2016 federally declared disasters and certain 2017 disasters (Hurricane Harvey or Tropical Storm Harvey, Hurricane Irma, Hurricane Maria and the California Wildfires).
  • All Miscellaneous Deductions that were subject to the 2% of the taxpayer’s adjusted gross income have been eliminated. This includes unreimbursed employee expenses, tax preparation fees, etc.
  • The Overall Limitation on Itemized Deductions for higher income taxpayers has been eliminated. Itemized deductions are no longer limited by a taxpayer’s adjusted gross income.

Moving Expenses
 - Taxpayers are no longer able to deduct moving expenses (unless the taxpayer is a member of the Armed Services).

Child Tax Credit and Refundable Child Tax Credit
 – A qualifying child must have a valid Social Security Number to be eligible for the Child Tax Credit for 2018. The amount of the Child Tax Credit has increased to $2,000 for each qualifying child under age 17. $1,400 of this credit is now refundable (up from $1,000 in 2017). A child under the age of 17 with an ITIN or ATIN will no longer qualify for the Child Tax Credit. 

The income phase-out for taxpayers claiming the Child Tax Credit has been significantly increased. The new limits are $400,000 for Married Filing Jointly (up from $110,000) and $200,000 for all other filing statuses (up from $75,000 for Single and Head of Household, and $55,000 for Married Filing Separately).

Other Dependent Credit
 – A credit of $500 is now available for each dependent claimed on the tax return that does not qualify for the Child Tax Credit. This $500 credit will be available for a Qualifying Child age 17 to 24, a Qualifying Relative, or a Child with an ITIN or ATIN living in the United States.

Educator Expenses
 – The $250 deduction teachers can claim for classroom related expenses remains unchanged for tax year 2018.

Education Credits
 – The American Opportunity Credit and Lifetime Learning Credit remain unchanged for tax year 2018.

Tuition and Fees Deduction –
 The tuition and fees deduction has been eliminated for tax year 2018.

Health Care: Individual Responsibility Payment
 – Remains for 2018 and will be calculated in the same manner as 2017. The Shared Responsibility Payment will be the greater of 2.5 % of household income that is more than the taxpayer’s filing status or $695 per adult or $347.50 per child. Taxpayers that have minimum essential health coverage or a coverage exemption for the entire year will no longer have to file Form 8965 – Health Coverage Exemptions to claim their exemptions but can instead indicate on Form 1040 that they have coverage or an exemption for the entire year. 
The Shared Responsibility Payment will be eliminated in 2019. 

Qualified Business Income Deduction
 – Pass-through business income may qualify for a deduction of up to 20%. Eligible pass-through businesses is income from sole proprietors reported on Schedule C, Partnership income reported on a Schedule K-1 (Form 1065), S-Corporation income reported on a Schedule K-1 (Form 1120S), rental income reported on a Schedule E, and farm income reported on a Schedule F. In addition, certain income from REIT’s, farm rentals, publicly traded partnerships and from an estate or trust may also qualify.

Alternative Minimum Tax
 – Alternative minimum tax (AMT) exemption amounts have increased to $70,300 for single taxpayers and taxpayers filing as head of household, $109,400 for married taxpayers filing jointly and $54,700 for married taxpayers filing separately. For 2018, the AMT exemption phaseout thresholds have been increased to $1 million for married taxpayers filing jointly and $500,000 for all other taxpayers.