By Mike Miles
This will be the first year of taxes filed under the Tax Cuts and Jobs Act of 2017. There were significant changes to the tax code compared to previous years. With consideration that it’s tax season, I thought it would benefit readers to have a quick rundown of some of the larger categories that had changes.
- Updated tax brackets – the new tax plan updated brackets across the board by lowering marginal tax rates and updating income levels as they apply. In 2017 the brackets were 10, 15, 25, 28, 33, 35 and 39.6 percent(s). In 2018 they are 10, 12, 22, 24, 32, 35 and 37 percent(s).
- Increase in the standard deduction – Married filing jointly and surviving spouse increased from $12,700 to $24,000. Head of household increased from $9,350 to $18,000. Single or married filing separately increased from $6,350 to $12,000. The same rule applies that you can’t take a standard deduction and itemize.
- Itemized deduction changes – gone are unreimbursed business expenses, tax preparation fees and other miscellaneous deductions. State and local taxes (SALT) deductions (property and income taxes or property and sales taxes) are limited to $10,000.
- Child and dependent tax credit expanded – before the new tax plan, you could get a credit of up to $1,000 for each qualifying child with a refundable portion equal to 15 percent of earned income that exceeded $3,000. This was originally phased out if the adjusted gross income (AGI) exceeded $75,000 (single) or $110,000 (jointly). The updated tax plan doubles the credit per child with $1,400 refundable and the income level increased to $200,000 (single) and $400,000 (jointly) before being phased out.
- Decrease in mortgage interest – the old tax plan allowed for mortgage interest up to $1 million to be deducted for those married filing jointly. That has decreased to $750,000. Interest paid on home equity lines of credit are deductible as long as the funds are used to buy, build or improve the home.
- Pass-through deduction for business owners introduced – Any business owner with pass-through income may be able to deduct up to 20 percent of the business income.
Overall, the new tax plan will appear simplified. The updated 1040 is half as long as it was before. Also removed is the Schedule B Interest and Ordinary Dividends.
If you are planning to buy a house in the spring, some of you will need your 2018 tax returns to qualify. Not every borrower needs to document tax returns as part of underwriting. However, if you are one of the borrower-types that is required to document tax returns … try to plan early and get your taxes done sooner than later. I’ll explain why in next week’s post.
This weekly Sponsored Column is written by Mike Miles of Fountain Mortgage. Located in Prairie Village, Fountain Mortgage is dedicated to educating, and thus empowering, clients to make the best financial decision possible for their situation. Contact Fountain today.
Mike Miles NMLS ID: 265927; Fountain Mortgage NMLS: 1138268