Now that the tax bill is final, we thought an overview of some of its key provisions would be helpful. For those inclined to read it, here is the full text of the bill and the committee summary. Please seek professional advice if you are looking for guidance on your own taxes and read this bulletin from the City of Summit regarding prepayment of property taxes.
The provisions of the recently passed bill take effect in 2018--some of the provisions are permanent while others will expire after 2025. Here are some key changes that may impact New Jersey residents:
State and local tax (SALT) deduction--in the end, the SALT deduction was preserved but it will now be capped at $10,000.
Mortgage interest and home equity loan deductions--the mortgage interest deduction (available on new mortgages of a first or second home) will be capped at $750k (currently $1 million). Please check with a professional but our understanding is existing mortgages will be unaffected. Home equity loans will no longer be deductible (currently deductible up to $100k).
Alternative Minimum Tax (AMT)--the final bill keeps the AMT, but does reduce the number of people who could be subject to it by increasing the exemption thresholds to $70,300 for individuals (currently $54,300) and $109,400 for married couples filing jointly (currently $84,500).
Child and Non-child tax credits--the child tax credit will be doubled from $1,000 to $2,000 and the income levels for which the child tax credit is available will also be expanded to $200,000 for single parents and $400,000 for married couples (currently $75,000 and $110,000, respectively). The new bill also introduces a $500 tax credit for non-child dependents, like adult children or elderly parents.
Pass-thru income deduction--those who pay business taxes on an individual basis because of pass thru income will be able to take a 20% deduction, however the deduction will not be available to those in a professional service business, like lawyers, accountants or doctors (notably, engineers and architects successfully lobbied to be excluded from the professional services exemption in the final bill). Also, the new bill subjects any salary taken by an owner in a pass-thru business to ordinary income taxation.
Individual mandate--there will no longer be a tax penalty for those who do not purchase health insurance. Currently, the penalty is calculated as the greater of (a) 2.5% of total income or (b) $695 per adult or $347.50 per child.
- Individual tax rates and deductions--currently, we have seven tax brackets at 10%, 15%, 25%, 28%, 33%, 35% and 39.6%. The bill preserves all seven brackets but lowers rates in most brackets, now set at 10%, 12%, 22%, 24%, 32%, 35% and 37%. The “standard deduction” will be increased from $6,350 to $12,000 for individuals and from $12,700 to $24,000 for married couples filing jointly. The “personal deduction,” which is currently at $4,050, will be eliminated.
There’s more to come from the Summit Taxpayers Association in 2018, stay tuned!
Have a happy and safe new year!