Last December, massive tax reform was successfully passed. And if you take a look at the new tax code, it’s a lot like going through a box of chocolates. There are quite a few goodies in there for individuals, but at the same time, there are a few not-so-sweet changes for your wallet, according to Stephen Varanko, a Certified Public Accountant (CPA). Here’s a rundown on what individuals can expect going forward under the new tax bill.
First, the tax brackets and associated rates have changed. Under pre-act law, six brackets existed: 10%, 15%, 25%, 28%, 33%, 35%, and 39.6%. Now, seven tax rates are in place: 10%, 12%, 22%, 24%, 32%, 35%, and 37%. A zero rate also exists. The 10% rate applies to married people whose taxable incomes are not over $19,050, whereas the 37% rate applies to married couples earning more than $600,000. In the latter case, the tax would be $161,379 plus 37% of the excess over $600,000. Just about all Americans will benefit from the reduced tax rates and broader tax brackets.
Another major change brought on by the new tax law is that the amounts people receive for standard deductions will rise to $12,000 for an individual, $18,000 for a head of household, and $24,000 for a married couple filing jointly as well as a surviving spouse. That’s great news as well.
On the flip side, there are two major changes with potentially negative impacts. The new tax law brings changes to the deduction of home mortgage interest. Now, you can deduct interest paid on up to $750,000 of debt. This is a lot lower than the limit for a mortgage taken out prior to December 15, 2017 -- a million dollars. The second significant negative change comes from the addition of a limit in the amount of state and local taxes (SALT) allowed. The new law limits the total SALT deduction to $10,000 which means many taxpayers will not receive a tax deduction for all of the taxes paid each year.
This means that home ownership may not be as cost effective for those owning expensive homes in high-property-tax states. A reputable CPA can easily walk you through these changes along with the many other tax-related changes that may affect you financially in the years ahead.