You may have heard that the Tax Cuts and Jobs Act takes effect on Jan. 1, 2019. One of the most talked about portions of the new tax law has been regarding the elimination of the alimony tax deduction. However, there is much more happening than just that.
Since this is the first major tax revision in decades, many people could find themselves confused about what they face at tax time. If you are one of those people, then it may help to have some general information about some of the upcoming changes.
Changes that may affect most people
When it comes to personal income taxes, you may find that the following changes will affect you, along with most people:
- The standard deduction is increasing to $12,000 for single taxpayers, $24,000 for those filing married joint and $18,000 for those filing as head of household until 2025.
- The personal exemption goes away completely until 2025.
- If you purchased a home after Dec. 31, 2017, you may only deduct the interest on your mortgage loan if it does not exceed $750,000. Starting Jan. 1, 2018, you can't deduct the interest on new or existing home equity debt.
- If you owned a home prior to Dec. 31, 2017, nothing changes for you. In any case, changes to the mortgage interest deduction expire in 2025.
- The child tax credit will increase, along with the maximum eligibility amount for those filing married joint. Other changes apply as well and end in 2025.
- The new law also removes the former limits on itemized deductions through 2025.
- The estate tax exemption increases to $11.2 million for individuals and $22.4 million for married couples.
Other changes may apply to you as well, but these represent the ones that apply to the most people, including you. If you are like other California residents, you may be starting to make plans to maximize your tax deductions before the end of the year. The measures that you took last year and in years before may no longer be your best options.
To truly understand how the new tax laws will affect your situation, it may be a good idea to discuss your circumstances with a tax attorney now while you still have time to make changes that could relieve some of your potential tax burden for 2018.