1. Changes to the kiddie tax:
The Tax Cuts and Jobs Act (“Act”) simplifies the old convoluted computations using tax data of other taxpayers – parents and siblings. The kiddie tax applies to children under age 19 and college students under age 24 who have unearned income over $2,100. Unearned income can means dividends, capital gains or interest on investments.
2. Changes to the child tax credit:
Old law allowed you were able to claim a $1,000 credit on your income tax return for each child under 17 who qualified; new law doubles that amount to $2,000 per qualifying child. The child tax credit was nonrefundable under the old law; 15% of your earned income over $2,500 (up to $1,400) is refundable under the new law.
3. $500 credit for dependents aged 17-24:
If your child does not qualify for the Child Tax Credit because they are over 17, they may still be eligible for a $500 credit under the new Act. The credit also applies for dependents who are elderly or disabled.
4 Expanding the 529 savings plan:
Under old tax law, your 529 plan could only be used at eligible colleges and universities. Under the new Act, you can use your plan to cover up to $10,000 per year of qualifying expenses for any school and any grade from kindergarten through 12th as well. That includes public, private, and religious institutions.
5. Changes to alimony deductions:
Old law allowed you to deduct alimony paid out. Likewise, your beloved ex will have to report the payments to the IRS. New law does not allow payer to deduct alimony and does not requires payee to report income. Good for one of you.
6. Changes to the personal exemption:
Old law allowed you to deduct personal exemptions. New law suspends personal exemptions through 2025, meaning you will not be able to deduct exemptions from 2018 to 2024. Families with few or no children don’t get hurt by this provision but families with many children hoping for more government aid do not welcome this provision.
7. Changes to the standard deduction:
The new Act it doubles the standard deduction to $24,000 ($12,000 if you are a single filer). It makes up for the loss of personal exemptions.
8. Restrictions to homeowner deductions:
Old law allowed homeowners to deduct interest on loans up to $1 million on primary and second homes. New law caps the mortgage loans to $750,000. Interest on home equity loans are no longer allowed, regardless of when they were taken. Bad news do end there – deductions for real estate taxes and state and local taxes are capped at $10,000. You lose interest on loans over $750,000, interest on home equity loans, and real estate and state taxes over $10,000. Bad.
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Victor Santos Sy graduated Cum Laude from UE with a BBA and from Indiana State University with an MBA. Vic worked with SyCip, Gorres, Velayo (SGV – Andersen Consulting) and Ernst & Young before establishing Sy Accountancy Corporation in Pasadena, California.
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He has 50 years of experience in defending taxpayers audited by the IRS, FTB, EDD, BOE and other governmental agencies. He is publishing a book on his expertise – “HOW TO AVOID OR SURVIVE IRS AUDITS.” Our readers may inquire about the book or email tax questions at [email protected].