Paycheck Chronicles

Is the New Tax Law a Good or Bad Thing?

As I suffered through a 40-page “summary” of the recent tax law changes, I was struck by the thought that the latest overhaul has yet to get us to the point of simplicity.

Is it better or worse? That’ll depend on your personal situation. But one thing’s for certain: It will be different. Here’s a brief, and by no means comprehensive, overview of some of the changes you may notice next year.

  • Lower rates. Tax rates are dropping and in some cases the amount of money subject to the lower rates is expanding.  
  • A bigger standard deduction. The individual standard deduction will rise from $6,350 in 2017 to $12,000 in 2018. For couples filing jointly, the increase is from $12,700 to $24,000. Sounds exciting but…
  • Personal exemption disappears. In 2017, most taxpayers could claim a $4,050 personal exemption. So, in 2017, a married couple filing jointly with no dependents would have a standard deduction/exemption total of $20,800. In 2018, the standard deduction will be $24,000, but there will be no personal exemption.  It’s better, but the loss of personal exemptions takes a bit of shine off the higher standard deduction.
  • Kids pay off. The child tax credit increases to $2,000 from $1,000, and there’s even a $500 credit for qualifying non-child dependents. Income eligibility thresholds also increase. A credit is a dollar-for-dollar reduction in your tax liability. So, it’s more valuable than a deduction, which just reduces the amount of your income that is taxed.
  • Home equity debt not deductible. Details are still pending, but the interest on home equity loans used for purposes other than acquiring, building or substantially improving your home will no longer be deductible. This will make consolidating other debts using your home equity less attractive — and that may not be a bad thing.
  • New inflation measurement. The new “chained” measure of inflation used under the new law will result in slower growth of income levels within the tax brackets. Over time, this will mean you’ll pay more taxes than you would have under the old inflation measurement.
  • Recharacterization of IRA contributions. Before 2018, if you converted a traditional IRA to a Roth IRA and the markets plummeted, you could undo the transaction. That’s no longer an option.
  • $10K Cap on state and local taxes deduction. This change has probably received the most press. In 2017, state and local income taxes, sales taxes and property tax (SALT) – is it OK to put it here? are all deductible without limit. In 2018, there’s a maximum total deduction of $10,000 for all these taxes.
  • 529 available for Precollege expenses. Up to $10,000 per student can be used each year for private K-12 expenses.
  • No more miscellaneous deductions. The deduction for this class of expenses, which had to exceed 2% of your adjusted gross income, is gone. 
  • Bid adieu to moving expenses. Generally, moving expenses won’t be deductible under the new law. There is an exception for servicemembers who PCS.

Most of these changes sunset in 2025, so don’t get too used to them.


J. J. Montanero is a Certified Financial Planner professional with USAA's Military Advocacy Group

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