How will tax reform affect my 2018 federal tax ret... - Intuit Turbo Real Money Talk

Why sign in to the Community?

  • Submit a question
  • Check your notifications
or and start working on your taxes
EnglishEN

Pick a language

English Français
cancel
Showing results for 
Search instead for 
Did you mean: 
Highlighted
Intuit
,Created with Sketch.48 helpful votes

How will tax reform affect my 2018 federal tax return?

In late December of 2017, Congress passed the largest tax reform bill in over 30 years. Almost every individual taxpayer will be affected by these changes, as will many businesses. Below, we've summarized the 2018 federal tax law changes and included some comparisons with their 2017 counterparts.

To see how the new tax laws affect both your federal and state taxes, simply sign in to TurboTax Online and prepare your return. There's no obligation – you only pay if you decide to print or file your return.

We still have 7 federal tax brackets (same as 2017), but most taxpayers will get a lower tax bracket when compared to 2017. However, this is not true for everybody.

For example, a hypothetical single filer with $50,000 in taxable income would see a 3% decrease from the 2017 tax rate (22% vs 25%), whereas a single filer with $250,000 in taxable income would see a 2% increase (35% vs 33%).

Keep in mind: These tables are for comparison purposes only, as calculating your 2018 tax bill is more complicated than simply applying a percentage to your taxable income (see this FAQ). TurboTax will accurately calculate your 2018 federal taxes and ensure you get all the deductions and credits you’re entitled to.

Also, it's important to remember that the lower tax rates may not result in a bigger refund this year, especially if you didn't update your W-4 to account for the changes. The lower rate may have come in the form of bigger paychecks in 2018 or a lower balance due on your 2018 tax return.

2018 marginal tax rate Single (S) and MarriedFiling Separately (MFS) Married Filing Jointly Head of Household
10% $0–$9,525 $0–$19,050 $0–$13,600
12% $9,526–$38,700 $19,051–$77,400 $13,601–$51,800
22% $38,701–$82,500 $77,401–$165,000 $51,801–$82,500
24% $82,501–$157,500 $165,001–$315,000 $82,501–$157,500
32% $157,501–$200,000 $315,001–$400,000 $157,501–$200,000
35% $200,001–$500,000 (S)$200,001–$300,000 (MFS) $400,001–$600,000 $200,001–$500,000
37% Over $500,000 (S)Over $300,000 (MFS) Over $600,000 Over $500,000
2017 marginal tax rate Single Married Filing Separately Married Filing Jointly Head of Household
10% $0-$9,325 $0-$9,325 $0-$18,650 $0-$13,350
15% $9,326-$37,950 $9,326-$37,950 $18,651-$75,900 $13,351-$50,800
25% $37,951-$91,900 $37,951-$76,550 $75,901-$153,100 $50,801-$131,200
28% $91,901-$191,650 $76,551-$116,675 $153,101-$233,350 $131,201-$212,500
33% $191,651-$416,700 $116,676-$208,350 $233,351-$416,700 $212,501-$416,700
35% $416,701-$418,400 $208,351-$235,350 $416,701-$470,700 $416,701-$444,550
39.6% Over $418,400 Over $235,350 Over $470,700 Over $444,550

The 2018 standard deduction is nearly double the 2017 amount:

2018 2017
  • $12,000 for Single, $18,000 for Head of Household
    • Add $1,600 if 65 or older
    • Add $1,600 if blind
  • $24,000 for Married Filing Jointly or Surviving Spouses
    • Add $1,300 for each spouse 65 or older
    • Add $1,300 for each blind spouse
  • $12,000 for Married Filing Separately
    • Add $1,300 if 65 or older
    • Add $1,300 if blind
  • $6,350 for Single, $9,350 for Head of Household
    • Add $1,550 if 65 or older
    • Add $1,550 if blind
  • $12,700 for Married Filing Jointly or Qualified Widow(er) with Dependent Child
    • Add $1,250 for each spouse 65 or older
    • Add $1,250 for each blind spouse
  • $6,350 for Married Filing Separately
    • Add $1,250 if 65 or older
    • Add $1,250 if blind

Our estimate is that nearly 90% of taxpayers will now take the higher standard deduction, up from an estimated 70% last year.

The itemized deduction isn't going away under the new tax reform laws, but a substantially increased standard deduction coupled with the cap in the SALT deduction means the percentage of taxpayers who itemize on their federal return (around 30% in 2017) is expected to drop to 10% in tax year 2018 according to our estimates.

In addition, the rules for some itemized deductions will change in 2018, while others will be suspended (see each item’s entry in this article for more details):

  • State, local, property, and sales tax (SALT) deduction – changed
  • Mortgage interest and home equity loans – changed
  • Donations – changed
  • Miscellaneous deductions subject to the 2% limit – suspended
  • Personal casualty and theft losses – suspended (with exceptions)

And finally, the Pease Limitation (a cap on certain itemized deductions if the taxpayer is high-income) has been suspended through 2025.

2018 2017
  • Personal and dependent exemptions have been suspended (eliminated) through tax year 2025.
  • For many taxpayers, the increased standard deduction, higher Child Tax Credit, and a new $500 Credit for Other Dependents is expected to offset repealed exemptions.
  • $4,050 for each taxpayer and dependent on the return.
  • Subject to phaseout (reduction) at AGIs at or above $313,800 (Married Filing Jointly), $156,900 (Married Filing Separately), $287,650 (Head of Household), and $261,500 (all others).

See the complete list of deductions suspended by tax reform.

In addition to doubling the 2017 credit amount, income phase-out thresholds have increased as well, meaning more families will be eligible to receive the full credit in 2018.

2018 2017
  • $2,000 for each child under 17
  • Credit is reduced by $50 for each $1,000 the MAGI exceeds:
    • $400,000 (Married Filing Jointly)
    • $200,000 (all other filing statuses)
  • Up to $1,400 per child is refundable
  • Child must have a valid SSN
    • Children with ITINs may instead qualify for the new $500 Credit for Other Dependents
  • $1,000 for each child under 17
  • Credit is reduced by $50 for each $1,000 the AGI exceeds:
    • $75,000 (Single, Head of Household)
    • $110,000 (Married Filing Jointly)
    • $55,000 (Married Filing Separately)
  • Up to $1,000 per child is refundable as the Additional Child Tax Credit
  • Child must have a valid SSN or ITIN

With dependent exemptions suspended through 2025, non-child dependents, as well as dependent children who don’t qualify for the Child Tax Credit, may instead be eligible for the new $500 per-person Credit for Other Dependents.

Self-employed individuals, sole proprietorships, and the owners of LLCs, partnerships, and S corporations may be able to exclude up to 20% of their qualified business income with this new deduction.

Generally, individuals with taxable incomes below $157,500 ($315,000 if filing jointly) can get the full 20% deduction on either their qualified business income or their taxable income minus capital gains, whichever is less. Taxpayers don’t need to itemize to get this deduction.

Figuring the deduction at higher income levels is complex and depends on total taxable income and business classification. See this article for more details about the QBI deduction.

Under the new tax law, the SALT deduction is capped at $10,000 ($5,000 if married filing separately). Prior to that, there was no cap. Taxpayers must still itemize to get this deduction – that part hasn't changed.

This hypothetical example illustrates the differences:

2018 2017
  • State and local tax (or sales tax) = $7,500
  • Property tax = $5,000
  • Vehicle registration = $500
  • Total SALT = $13,000

Deductible amount = $5,000 (married filing separately) or $10,000 (all others)

  • State and local tax (or sales tax) = $7,500
  • Property tax = $5,000
  • Vehicle registration = $500
  • Total SALT = $13,000

Deductible amount = $6,500 (married filing separately) or $13,000 (all others)

Most homeowners won’t be affected by the lower cap on mortgage interest, but the conditions to deduct interest on home equity loans and lines of credit are more restrictive in 2018.

2018 2017
  • If you itemize, you can deduct the interest on up to $750,000 in mortgage debt, if the loan was used to buy or improve a first or second home.
  • Mortgages and refinances taken out before December 16, 2017 are grandfathered in at the $1 million debt limit.
  • You can still deduct the interest on a new or existing home equity loan or line of credit, but only if it’s used to buy, build, or substantially improve your home and your total mortgage debt doesn’t exceed $750,000.
  • If you itemize, you can deduct the interest on up to $1 million in mortgage debt, if the loan was used to buy or improve a first or second home.
  • You can deduct the interest on a home equity loan or line of credit not exceeding $100,000, even if you used the loan proceeds for something unrelated to your home.

2018 marks the last tax year the Affordable Care Act penalty remains in effect.

For tax years 2016, 2017, and 2018, the penalty amount is the greater of 2.5% of your taxable household income or $695/$347.50 per uninsured adult/child under 18 (up to a maximum of $2,085).

2018 2017
  • If you itemize, you can deduct cash donations of up to 60% of your adjusted gross income (AGI).
  • Donations made to college athletic departments and booster clubs in exchange for the right to buy tickets are no longer deductible.
  • If you itemize, you can deduct cash donations of up to 50% of your AGI.
  • You can deduct 80% of donations made to (or for the benefit of) a college or university in exchange for the right to buy tickets to an athletic event in the athletic stadium of said college/university.

 

2018 2017
  • The deduction for moving expenses has been suspended (eliminated) through tax year 2025.
  • The one exception is for military members who were ordered to move to a new permanent station.
  • Reasonable moving expenses that were not reimbursed by your employer are deductible if the move coincides with the start and location of your new job, and you also meet certain distance and time tests.
  • Military members ordered to move to a new permanent station are exempt from the distance and time tests.

See the complete list of deductions suspended by tax reform.

Although this deduction is no longer available in 2018, most taxpayers won’t miss it, as the conditions were fairly restrictive. (This doesn’t affect business owners and self-employed contractors, who can continue to deduct these as business expenses on Schedule C.)

2018 2017
Unreimbursed job expenses and other miscellaneous deductions subject to the 2% rule have been suspended (eliminated) through tax year 2025. If you itemize, you can deduct the portion of certain miscellaneous expenses exceeding 2% of your AGI, including:
  • Unreimbursed job-related expenses (union dues, employee home office, tools, subscriptions, job-seeking expenses, etc.)
  • Tax preparation fees
  • Investment or advisory fees
  • Safe deposit box rentals

See the complete list of deductions suspended by tax reform.

2018 2017
The deduction for personal casualty or theft losses has been suspended (eliminated) through tax year 2025, unless the loss occurred in a federally-declared disaster area and was directly caused by the disaster. You can deduct uninsured losses exceeding $100 due to fire, theft, or natural disaster if your total loss amounts to more than 10% of your AGI.

See the complete list of deductions suspended by tax reform.

The AMT lives on, but the number of affected filers should drop significantly in 2018 – over 95% according to some experts – due to higher exemptions and phase-out thresholds.

2018 2017
AMT exemptions:
  • $109,400 (Married Filing Jointly)
  • $54,700 (Married Filing Separately)
  • $70,300 (all others)

Exemption phase-out thresholds:

  • $1 million (Married Filing Jointly)
  • $500,000 (all others)
AMT exemptions:
  • $84,500 (Married Filing Jointly)
  • $42,250 (Married Filing Separately)
  • $53,400 (all others)

Exemption phase-out thresholds:

  • $160,900 (Married Filing Jointly)
  • $80,450 (Married Filing Separately)
  • $120,700 (all others)

2018 2017
The portion of a child's investment income that exceeds $2,100 is taxed at the brackets and rates for trusts and estates:
  • The first $2,550 is taxed at 10%
  • The next $6,600: 24%
  • The next $3,350: 35%
  • Anything beyond that: 37%
The portion of a child's investment income that exceeds $2,100 is taxed at their parent's highest tax rate (up to 39.6%).

If the divorce or separation became official before 2019, you can still deduct alimony (spousal support) payments, and if you receive alimony, you must continue to report it as income.

Alimonies for divorces and separations finalized after 2018 are no longer taxable or deductible.

529 plans aren't just for college anymore.

2018 2017
Distributions from 529 plans can be used to pay for qualified expenses at public, private, and religious K-12 schools (up to $10,000/year per student) in addition to colleges and universities. Distributions from a 529 plan must be used for higher education (college, university, or other post-secondary schooling).

These changes only apply to professional gamblers. Recreational gamblers are not affected by the 2018 changes.

2018 2017
  • Professional gamblers can deduct the sum of non-wagering expenses plus gambling losses up to the amount of winnings.
  • Recreational gamblers can deduct gambling losses up to the amount of winnings.
  • Professional gamblers can deduct their non-wagering expenses (travel, betting fees, etc.) as business expenses.
  • All gamblers can deduct gambling losses up to the amount of winnings.

2018 2017
Student loan debt that was discharged due to death or disability no longer counts as taxable income. In general, all discharged student loan debt is treated as taxable income regardless of circumstance.

The per-person exemption for estates, gifts, and GST is $11.18 million (up from $5.9 million in 2017).

2018 2017
  • The deduction for entertaining business associates and clients has been suspended (eliminated) through tax year 2025. Meals are still 50% deductible when all conditions are met.
  • Meals provided to employees for the convenience of the employer are 50% deductible through 2025, and will no longer be deductible after 2025.
  • Tickets to sporting or other entertainment events are 50% deductible at face value.
  • Tickets to qualified charitable events are 100% deductible.
  • Meals provided to employees for the convenience of the employer are 100% deductible.

See the complete list of deductions suspended by tax reform.

Under the new tax bill, like-kind (Section 1031) exchanges are limited to real estate in 2018. Formerly, other types of property, such as vehicles, qualified as like-kind exchanges.

Under the new tax law, the Section 179 deduction amount increases to $1 million (up from $500,000 in 2017) and the definition of 179 property has been expanded.

2018 2017
The Qualified Bicycle Commuting Reimbursement has been suspended (eliminated) through tax year 2025. You can deduct up to $20 a month in employer reimbursements for qualified bicycle commuting expenses, such as bikes, helmets, maintenance, and repairs if you regularly commute to work on a bicycle and don’t receive any other transit-related employee benefits.

See the complete list of deductions suspended by tax reform.

Was this helpful?

You must sign in to vote, reply, or post
Intuit TurboTax - Finish filing and get your maximum refund, guaranteed.

Ready to Try TurboTax?

Returning? Sign in