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IRS New Changes

This section of the text highlights provisions in three new Acts: Tax Cuts and Jobs Act of 2017 (TCJA of 2017).

I’m getting a lot of questions about new Tax Cuts and Jobs Act of 2017 (TCJA of 2017).  I am, currently going to show how these changes will affect you in your tax return next year (2019) and tax bracket.  I hope it helps you understand the new tax code changes.  The new 1040 forms and other forms are changing (thus showing you drafts of the changes).

Summary

  1. Few Tax Changes
  2. Tax forms

Few Tax Changes

Tax Cut and Jobs Act of 2017

On December 22, 2017, President Trump signed into law the Tax Cuts and Jobs Act (TCJAof2017). Arguably the most significant changes to the Internal

Revenue Code in decades, the law reduces tax rates for individuals and corporations, repeals many deductions, but adds some significant deductions as well that benefit many taxpayers.

Which taxpayers’ benefit, and which end up with a high tax liability depends on numerous variables including tax bracket, state of residence, home or business ownership, or specific deductions taxpayer has relied on in the past. In some cases, deductions have increased and in others, they have been reduced or, in many cases, they have been suspended altogether. Each client’s unique facts and circumstances determine whether this sweeping legislation is a win or lose.

Mostoftheindividualchangesexpireattheendof2025, meaning the old tax code rates and deductions return in 2026 unless Congress passes another law before then. Unless otherwise indicated, the following provisions are effective fortaxyearsbeginningafterDecember31,2017, and before January 1, 2026. Therefore, many of the following changes are temporary.

In this section of the text, we look at the most important changes that impact most taxpayers.

Cancellation of Student loan indebtedness

Gross income generally includes the discharge of indebtedness of the taxpayer. Under an exception to this general rule, gross income does not include any amount from the forgiveness (in whole or in part) of certain student loans, provided that the forgiveness is contingent on the student working for a certain period in certain professions for any of a broad class of employers [§108(f)].

The exclusion from income resulting from the discharge of student loan debt is expanded temporarily for years beginning in 2018 through 2025 to include discharges resulting from death or disability of the student [§108(f)(5)].

Income Tax Rates

The TCJA of 2017 introduced new tax rates for regular income tax as follows:

Tax Rates
20172018
10%10%
15%12%
25%22%
28%24%
33%32%
35%35%
39 .6%37%

Standard Deduction

Under the TCJA of 2017, the standard deduction increased significantly, nearly doubling, for years 2018 through 2025.

 

 

2018 Standard Deduction Compared to 2017 Standard Deduction
Filing Status20172018
MFJ, QW$12,700$24,000
HH$9,350$18,000
S, MFS$6,350$12,000

 

 

 

The increased standard deduction for the blind and elderly remained unchanged.

Capital Gain Rates

For 2018, there are still three general rates that apply to most: long-term capital gains, an unrecaptured §1250 rate, and the collectibles rate. However, because of the changes to ordinary income tax rates, determining which capital gain rate applies has changed:

  • A capital gains rate of:

» 0% applies to the adjusted net capital gains of individuals for the portion of the gain that formally would be taxed at a rate below 25% (10% or 15%) but does not exceed the maximum 0% rate amount.

»15% applies to adjusted net capital gains of individuals for the portion of the gain that formally would be taxed at a rate below 39.6%. Exceeds the amount subject to the 0% rate but does not exceed the maximum 15% rate amount.

» 20% applies to adjusted net capital gains of individuals for the portion of the gain that formally would be taxed at the 39.6% rate amount but exceeds the maximum 15% rate amount.

  • Unrecaptured 1250 gain for depreciation claimed on real estate is taxed at the applicable graduated ordinary income tax rates up to a maximum of 25%.
  • Collectibles are taxed at the applicable graduated ordinary income tax rates up to a maximum of 28%. When the §1202 exclusion applies to gain on the sale of qualified small business stock (QSBS), the taxable gain is taxable at the applicable graduated ordinary income tax rate up to a maximum of 28%.

NEW Proposed 2018 Tax forms

The IRS released a new Form 1040 for the 2019 tax season. The new Form 1040—about half the size of the current version—replaces the current Form 1040 as well as Forms 1040A and 1040EZ. ThenewForm1040 uses a “building block” approach, in which the tax return is reduced to a simple form.  That form can be supplemented with additional schedules if needed.