In a NutshellThe Tax Cuts and Jobs Act of 2017 made significant changes to the tax code. Here’s how some of these tax plan changes might affect you in the 2018 tax year and beyond.
This article was fact-checked by our editors and reviewed by Jennifer Samuel, senior product specialist for Credit Karma.
The sweeping tax plan that Congress passed in 2017 has major implications for all Americans — and whether its impact on your taxes will be positive or negative depends on your situation.
If you want to continue to maximize your tax refund each year, it’s important to know how tax reform affects you and how to take advantage of the changes.
To help, we’ve put together a list of eight significant tax plan changes and how they could affect you.
- Updated tax brackets
- Increased standard deduction
- Personal exemptions eliminated
- Expanded child and dependent tax credit
- SALT deduction capped
- Decreased mortgage interest deduction
- Changes to other itemized deductions
- Pass-through deduction for business income introduced
The new tax plan updated tax brackets across the board, lowering marginal tax rates and updating income levels they apply to. Here are the new tax bracket thresholds for the 2018 tax year.
2018 Tax Bracket Thresholds
Taxable Income by Filing Status
|Marginal tax rate||Single||
Married filing jointly/
|Head of household||Married filing separately|
|37%||$500,001 and more||$600,001 and more||$500,001 and more||$300,001 and more|
Keep in mind that this chart only shows the income thresholds for each tax bracket. Calculating your tax requires additional information that can be found in the Tax Cuts and Jobs Act. For each tax bracket and filing status, tax is calculated by applying the tax rate to income that falls within the thresholds for the bracket and adding a flat amount of tax that’s described in the TCJA.
The standard deduction is a tax deduction that most taxpayers can use to reduce their taxable income.
With the new tax plan, the standard deduction has nearly doubled for the 2018 tax year. It’s scheduled to increase with inflation each year through the 2025 tax year. Here’s a quick look at what’s changed.
|Filing status||2017 tax year||2018 tax year|
|Married filing jointly and Surviving Spouse||$12,700||$24,000|
|Head of household||$9,350||$18,000|
|Single or married filing separately||$6,350||$12,000|
Additional standard deductions may apply for people who are blind or 65 and older.
Keep in mind that you can’t take the standard deduction if you choose to itemize your deductions instead. But if your itemized deductions exceed your standard deduction amount, you could reduce your taxable income even more.
While tax reform increased the standard deduction, it also eliminated personal exemptions entirely.
Before the changes to the tax plan, a personal exemption would reduce your taxable income by $4,050, and you could take one for yourself, one for a spouse and one for each dependent. The exemption phased out if you reached a certain adjusted gross income.
Prior to the tax plan, you could get a tax credit of up to $1,000 for each qualifying child, with a refundable portion equal to 15% of the amount of your earned income that exceeded $3,000.
That said, the credit started phasing out if your AGI exceeded $75,000 (or $110,000 for married couples filing jointly).
With the tax plan changes, the child and dependent tax credit increases to $2,000 per qualifying child, of which $1,400 is refundable. Tax reform also created a $500 nonrefundable credit for qualifying dependents other than children.
What’s more, Congress increased the income level for when the credit begins to phase out to $200,000 (or $400,000, if you’re married filing jointly), making the credit available to more taxpayers.
Through the 2017 tax year, if you itemized your deductions, you could choose to deduct certain state and local taxes (or SALT tax), including property and income taxes or property and sales taxes.
Regardless of which option you chose, there was no limit to the amount you could deduct.
The Tax Cuts and Jobs Act, however, now limits your total deduction to $10,000 ($5,000, if you’re married filing separately) for state and local property and income taxes, or property and sales taxes.
While this might not make any difference for some taxpayers, it could add a significant tax burden to people with costly property or state income tax bills.
Before the new tax plan, homeowners who were married filing jointly could deduct their mortgage interest through itemized deductions on up to $1 million of home acquisition debt.
What’s more, you could also deduct up to $100,000 in interest paid on loans that are secured by your home, including home equity loans and home equity lines of credit.
Starting in 2018, however, the limit on home acquisition debt has gone down to $750,000 ($375,000 for married couples filing separately), and the home equity interest deduction has been modified.
You can still deduct interest paid on a home equity loan or line of credit as long as you’re using the funds to buy, build or substantially improve the home that’s securing the debt. The amount of the debt is rolled in with your home acquisition debt and is subject to the $750,000 limit.
In addition to changes to the SALT and mortgage interest deductions, the Tax Cuts and Jobs Act also made updates to other itemized deductions, including …
- Unreimbursed medical expenses: Previously, you could only deduct eligible and unreimbursed medical expenses that exceeded 10% of your AGI. With the new tax plan, that threshold decreases to 7.5% for the 2018 tax year.
- Casualty and theft losses: Prior to the Tax Cuts and Jobs Act, you could deduct any personal casualty or theft losses not reimbursed by insurance as long as they exceeded $100 per loss. Your total deductions, however, couldn’t exceed 10% of your AGI. Now, you can only deduct casualty and theft losses (not exceeding 10% of AGI) if they’re attributed to a presidentially declared disaster.
- Aggregate itemized deduction limits: Instead of restricting how much high-income taxpayers can deduct through itemized deductions, tax reform instead eliminated the overall limit.
If you’re a business owner with pass-through income, you may be able to deduct up to 20% of your business income when filing your taxes.
Pass-through income is income from a business that passes through to the owners, meaning it’s taxed under individual income tax rates rather than the corporate tax rate.
According to the Brookings Institution, 95% of U.S businesses are one of these pass-through entities, including …
- Sole proprietorships
- S corporations
The rules for who can claim this new deduction are complex, so if you think you might be able to claim it, consider verifying your eligibility with a tax professional you trust.
These aren’t the only changes to the tax code that Congress passed with the Tax Cuts and Jobs Act. But they’re some of the most influential ones for the average taxpayer.
As you think about your tax return for 2018, consider how these changes will impact you and what you can do to take advantage of some of the positive changes.
Jennifer Samuel, senior tax product specialist for Credit Karma, has more than a decade of experience in the tax preparation industry, including work as a tax analyst and tax preparation professional. She holds a bachelor’s degree in accounting from Saint Leo University. You can find her on LinkedIn.