A tax bill has recently passed both the House and the Senate, potentially changing how estate planning handles your assets. Known as the “Tax Cuts and Jobs Act,” both houses of Congress passed different versions of the bill so it is unclear what the final legislation will include or if it will even pass. That said, both versions include some common elements and it’s important to understand what these potential changes might mean for your family’s tax planning.
For example, if you are a W-2 employee, you may want to start a side-line business in 2018 to offset some of the potential negative impact of the tax law changes. If you have specific questions on personal impact to you, contact us prior to year-end so we can discuss. You can use this knowledge to implement tax-saving strategies—by potentially deferring income to 2018 or accelerating deductions into 2017—if you take action before year end.
Keep in mind: None of this is set in stone, but one thing is for sure: knowledgeable, proactive planning is always wise, especially when supported by a trusted advisor who can guide you.
Higher standard deduction
Both versions of the bill increase the standard deductions to nearly identical levels: $12,200 for singles and $24,400 for joint filers in the House and $12,000 and $24,000 in the Senate. They also eliminate personal exemptions, though, so those with dependents won’t see quite as much savings. Also, if you’ve deducted medical expenses and/or charitable donations in the past, that would be eliminated, so if you donate to charity and are able to write off your donations because you itemize your expenses rather than take the standard deduction, consider increasing your charitable donations this year, since they may not be deductible next year.
Changes to mortgage interest deduction
The bill keeps the mortgage interest deduction but adds some new limits. Current homeowners can continue deducting mortgage interest up to $1 million. For new home buyers, however, the deduction will be capped at $500,000. Furthermore, the bill only allows homeowners to take the deduction for their primary residence, not vacation and/or second homes, and the bill no longer permits taxpayers to deduct the interest on home equity loans or lines of credit.
Increased child tax credit
Those with young children will see an increase in the child tax credit, too. The House raises the credit to $1,600 per child, with a phase-out for joint filers with an income of $230,000, while the Senate plan boosts the child credit to $2,000 per child and sets the phase-out at $500,000.
Expanded estate tax exemption
The House bill sets in motion a full repeal of the estate tax by 2024. In exchange, it boosts the exemption from its current $5.49 million to $10 million starting in 2018. The Senate doesn’t repeal the estate tax, but it does significantly raise the exemption to $11.2 million. Chances are you aren’t impacted by the current estate tax, but if you are, contact us so we can take advantage of potential opportunities to save going into 2018, as it’s likely that the estate tax exemption amount will be rolled back after future elections.
Eliminated state and local income tax deductions
Both bills repeal deductions for state and local income taxes. However, they do still allow for up to a $10,000 deduction for state and local property taxes.
Changes to medical expense deduction
As for the itemized medical expense deduction, the House plans to totally eliminate it while the Senate’s bill keeps it and reduces the income threshold above which medical expenses are deductible from 10% to 7.5%
To review your tax strategies and possibly benefit from these potential changes, contact us as your Personal Family Lawyer® right away. At the same time, it’s never too late to start planning for next year. So even if it’s after the 1st, contact us to begin planning for next year now.
This article is a service of Levi Alexander, Personal Family Lawyer®. We don’t just draft documents; we ensure you make informed and empowered decisions about life and death, for yourself and the people you love. That’s why we offer a Family Wealth Planning Session, ™ during which you will get more financially organized than you’ve ever been before and make all the best choices for the people you love. You can begin by calling our office today to schedule a Family Wealth Planning Session and mention this article to find out how to get this $750 session at no charge.
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