The Tax Cut and Jobs Act (TCJA) is now officially law and it’s good news for most Americans. These are a few of the provisions that we believe will impact our clients from an estate planning perspective.
Standard Deduction is Almost Doubled. For single filers, the standard deduction is increased from $6,350 to $12,000. For married couples filing jointly, it increases from $12,700 to $24,000. This new deduction replaces the personal exemptions for yourself, your spouse, and each dependent. The blind and elderly deduction has been retained in the new law. People age 65 and over (or blind) can claim an additional $1,550 deduction if they file as single or head-of-household. Married couples filing jointly can claim $1,250 if one meets the requirement and $2,500 if both do.
Medical Expenses Deduction. The new law increases this to medical expenses that exceed 7.5% of income (as opposed to those that exceed 10% of their income – prior to the tax changes).
Lower Cap on Mortgage Interest Deduction. The new law puts the cap at $750,000 (as opposed to $1,000,000 before the law was enacted) of debt. (If you already have a mortgage, you would not be affected.) The new law also eliminates the deduction for interest on home equity loans, which is currently allowed on loans up to $100,000.
Temporary Credit for Non-Child Dependents. Under the new law, parents will be able to take a $500 credit for each non-child dependent they are supporting. This would include a child age 17 or older, an ailing elderly parent or an adult child with a disability.
Federal Estate Tax Exemptions Doubled. The new law does not repeal the Federal estate tax, but it eliminates it for almost everyone by doubling the estate tax exemption to $11.2 million for individuals and $22.4 million for married couples. Amounts over these exemptions will be taxed at 40%. The new rates are effective starting January 1, 2018 through December 31, 2025.
Eliminates Individual Mandate to Buy Health Insurance. With the elimination of the individual mandate to purchase health insurance, there will no longer be a penalty for not buying insurance.
529 Plans Expanded. The new tax law expands the use of tax-free distributions from these plans, including paying for elementary and secondary school expenses for private, public and religious school, as well as some home schooling expenses. Educational therapies for children with disabilities are also included. There is a $10,000 annual limit per student.
ABLE Accounts Adjusted. The new tax law allows money in a 529 education plan to be rolled over to a 529A ABLE account, but rollovers may count toward the annual contribution limit for ABLE accounts ($15,000 in 2018). The new law also changes the rules on contributions to ABLE accounts by designated beneficiaries who have earned income from employment.