I have been reviewing all my client’s taxes to see who will be affected by the tax reform bill that went into effect at the beginning of this year. Guess what, I found that very few will be affected in an adverse way and the ones that will be will not be hit as hard as originally projected.
If you had a personal casualty loss in 2018 watch out. Personal casualty normally occurs when you have a theft or loss of personal property such as a personal loan gone bad. This will affect those who experienced a personal loss such as a house fire or theft of a car. If it is a federally declared disaster area you will still be able to take the loss. Remember this does not affect business property only personal.
If you have ever had to pay alternative minimum tax you are in for a surprise. You will not be affected until you reach an income of $109K for a married couple filing jointly. The phaseout also jumped to 1 Million so unless you made over a million last year the full effect of the alternative minimum tax will not be as much of a problem. This is a great boon since in 2017 you could be subject to this on only 80K of income.
If you have an estate or trust you need to review your documents because they now use higher exemptions and you will be saving on taxes but watch out for the year 2026 when those limits will suddenly drop. So, unless you are planning on dying in the next 8 years you will want to check those limits carefully.
If you pay or receive alimony you are in for a shock. Paying alimony is no longer deductible, whereas receiving alimony is no longer taxable. The good news is this is only for anyone getting divorced after December 31st of 2018 all others will be grandfathered in under the old rules. Watch out though – if you modify an old agreement after the first of the year it can be considered as a new agreement and must have very exact wording to stay grandfathered in so make sure you discuss that with your attorney.
The biggest changes are in the standard deduction – it is now at $24K for a married couple and $12K for singles. That means your mortgage interest, charitable donations and other expenses will have to be over those limits before you will itemize. Some of you will love that because you now don’t have to search for all the medical copays and such, others will hate it because you now need every receipt and will have to be even more diligent in keeping track of those.
Selling your primary residence can be a problem if you have not lived in your house for at least 5 years. Under the old rules you had to live in your house 2 out of 5 years to claim the 121 exclusion. That has now changed so you must live in the house 5 out of the last 8 years. But if you move early don’t despair, you can still use a percentage of the 121 exclusion to offset some of the effect. And there are still exceptions such as moving for military orders.
In short, plan for your taxes but don’t stress over them. If you have a questions just drop us an email or schedule a time to talk.