12/26/2017
Your tax situation may change for the 2018 year as a result of the new Tax Cuts and Jobs Act (TCJA).
We strongly encourage you to consult with your tax and other advisors before taking action.
According to USAA:
Income
Individual income tax rates: Most individuals will see rates go down. The new rates will sunset after 2025.The standard deduction has nearly doubled, and many may no longer need to itemize their taxes. Personal exemptions are eliminated. These provisions will sunset after 2025.State and local taxes: There is a new limit on deductions (capped at $10,000) for the total of property and sales or income taxes. This provision will sunset after 2025.Alternative Minimum Tax (AMT): The exemption increases to $70,300 for single tax filers and $104,900 for joint filers. The phase-out threshold increases to $500,000 for single filers and $1 million for joint filers. This provision will sunset after 2025.
Actions to Consider by Year-end 2017:
Consider deferring income into 2018 if personal tax rate might decrease.Consider accelerating charitable contributions to take full advantage of itemized deductions.Consider making high-dollar purchases now to take advantage of higher sales tax deductions this year.Consider prepaying 2018 property taxes in 2017 if it’s likely you won’t itemize in 2018. If you do expect to itemize, consider prepaying all but $10,000 of your 2018 property tax obligation.
Family
The child tax credit will increase from $1,050 to up to $2,000 for children under 17 years of age and is subject to higher income phaseout limits. This provision sunsets after 2025.Dependent tax credit: There is a new $500 tax credit for qualifying dependents age 17 and older. This provision sunsets after 2025.529 plans can now be used for K-12 education expenses. (up to $10,000 per student per year)
Actions to Consider by Year-end 2017:
Evaluate how utilizing 529 funds for K-12 qualifying education expenses may affect your other short- and long-term education savings goals. It may be beneficial for you to delay payment of 2017 qualifying expenses into 2018 (however, consider the impact of late payment penalties).
Health
The medical expense deduction threshold will be reduced to 7.5% of your adjusted gross income for 2017 and 2018, which means you’ll have a higher likelihood of being able to deduct future medical costs in those years. The threshold will be restored to 10% again in 2019.The Affordable Care Act personal mandate will be repealed beginning in 2019, which means you will no longer be penalized for not having qualified health insurance.
Actions to Consider by Year-end 2017:
Consider receiving medical care in 2017 or 2018 to take advantage of the lower threshold deduction. Also, consider where you are in meeting your health plan deductibles.
Home
Deductible mortgage interest for new home purchases (beginning in 2018) of first or second homes is capped at loans of $750,000. Existing loans as of December 15, 2017 will not be affected. Loans under binding written contracts entered into prior to December 15, 2017 and that close prior to April 1, 2018 will also not be affected. This provision sunsets after 2025.Deductible home equity loan interest: Deductions for home equity indebtedness is repealed.
Actions to Consider by Year-end 2017:
Evaluate accelerating a home purchase closing or home equity loan, if feasible.
Investments and Retirement
Recharacterizations of Roth IRA conversions end after the 2017 tax year.
Actions to Consider by Year-end 2017:
A recharacterization of a Roth IRA conversion must be completed by December 31, 2017. Starting in 2018, this option is no longer available.Conversions to Roth IRAs will continue to be available in 2018. Consider delaying until 2018 to convert to a Roth IRA since 2018 tax rates may decrease.
For more information on The Tax Cuts and Jobs Act, visit https://www.congress.gov/bill/115th-congress/house-bill/1.
The contents of this document are not intended to be, and are not, legal or tax advice.
Summary of H.R.1 - 115th Congress (2017-2018): An Act to provide for reconciliation pursuant to titles II and V of the concurrent resolution on the budget for fiscal year 2018.
