By Brandon Miller, CFP–
The President called the new tax law a “big, beautiful Christmas present” for Americans. Now that we’ve had a little time to unwrap the impact of the new tax code, let’s see if you got a shiny diamond—or a lump of coal.
Here are some of the major changes:
• Lower income tax brackets. There are still seven brackets, all of which are going down except for the very lowest earners. Sounds great, except other changes may offset what you save here. And in 2026, the rates go back to 2017 levels unless Congress extends them.
• A higher standard deduction. The deduction rises to $12,000 for single filers and $24,000 for joint filers. With this increase, most filers—94% according to the Joint Committee on Taxation—won’t bother itemizing their taxes (but they still won’t be able to file on a postcard). See below for why you’re getting this “gift.”
• Elimination of most itemized deductions. Yep, you’ll need a higher standard deduction, because there are fewer items that you can use to lower your taxes. That $4,150 personal exemption you used to be able subtract for each person claimed? Gone! Moving expenses for a job relocation? No more, unless you’re in the military. Deductions for alimony payments? Not if you get divorced this year or any year thereafter. Writing off the interest paid on your home equity debt? Kiss that goodbye. What all this means is that for many income brackets, the higher standard deduction won’t offset these lost deductions.
• Caps on deductions of state and local taxes—including property taxes. If itemizing still works in your favor, you can now only deduct up to $10,000, not the unlimited amount that used to be eligible.
• Lower mortgage interest deductions. Homeowners who bought prior to 2018 aren’t affected, but new owners can only deduct the first $750,000 of mortgage debt—not the $1 million that used to be eligible. This change is particularly painful for us in the San Francisco Bay Area given that the median home price was $787,000 in December 2017.
• Higher AMT threshold. Fewer people will have to deal with the dreaded alternative minimum tax now that the exemption has been raised to $70,300 for singles and $109,400 for joint filers.
• Doubled estate tax exemptions. Fewer large estates will be subject to the estate tax now that the threshold is twice the former amount of $5.49 million for individuals and $10.98 million for married couples.
• Expanded credits for dependents. The child tax credit doubles to $2,000 per child, 17 and under. It’s now available to single parents earning up to $200,000 and married couples making up to $400,000. And there’s a new $500 credit for taxpayers claiming non-child dependents, such as an elderly parent or adult child with a disability.
As you can see, the new law is a mixed bag. Some things work in your favor, others against you.
If you’re confused about whether to itemize or not, given all of these changes, it may make sense to go see a tax professional. But don’t try to deduct their fees from your taxes. That break has been eliminated as well.
Brandon Miller, CFP® is a financial consultant at Brio Financial Group in San Francisco, specializing in helping LGBT individuals and families plan and achieve their financial goals.
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