The Tax Cuts and Jobs Act of 2017 brings significant changes to 2018 tax returns, including a new format to form 1040, and new schedules. Personal exemptions are gone, but standard deductions are increased.
Small business owners can deduct 20% of Qualified Business Income, subject to certain income limitations.
Itemized vs Standard Deductions
With increased standard deductions, and new restrictions on Itemized deductions, many taxpayers will find the standard deduction exceeds their Itemized deductions. Standard deductions are $24k for Married Filing Joint, $18k for Head of Household, and $12k for Single. Taxpayers over age 65 get and additional $1300 to $1600 per person.
Mortgage interest deduction
Previously, interest on up to $1M of home mortgage debt was deductible. Under the new law, interest can be deducted on up to $750k of total home acquisition debt. The $750k limit generally applies to debt incurred after Dec. 15, 2017. Older home mortgages are grandfathered and get the $1M cap.
The treatment of interest on home equity and refinance payout loans is tricky. In order to be deductible, the loan must be used to buy, build or substantially improve a home.
State and Local Taxes (SALT)
Personal itemized deduction of state and local taxes, including state income tax and property tax, is now limited to $10k total ($5k for Married Filing Separate).
Miscellaneous Itemized Deductions
All deductions that were subject to the 2% of AGI threshold are gone. This includes unreimbursed employee business expenses, tax preparation fees, financial advisor fees, safe deposit box fees and many more.
The tax treatment of alimony payments changes significantly, HOWEVER, the changes are only applicable to new divorces finalized AFTER December 31, 2018. Previously finalized divorces are still subject to the old alimony tax rules. For new divorces (finalized after 2018), alimony payments will no longer be taxable and deductible.