In late 2017, Congress passed a new tax law that will affect your taxes in 2018. There were many changes to the tax structure, both for people and businesses that may affect your decisions this year and come tax time next year. Here are some ways the new tax law will affect individuals.
Limits on state and local tax (SALT) deductions
Prior to the enactment of the new law, individuals could deduct an unlimited amount of SALT. SALT includes property tax, local sales tax and state income tax. Now, people are only allowed to deduct up to $10,000 if they itemize their deductions. Tennesseans will still be able to deduct property taxes and the higher of their sales tax or state income taxes (e.g. the TN Hall tax) subject to the new limitations
An increase in the standard deduction
The standard deduction has been almost doubled across the board. Fewer people will itemize deductions (such as SALT or mortgage interest) as the standard deduction will be greater than the amount they will gain from itemizing. See the table below to see how the new standard deduction compares to the previous one.
|Head of household||$9,350||$18,000|
Buying a new home
One provision of the tax plan affects those taking out a new mortgage between Dec. 15, 2017 and Dec. 31, 2025 and limits interest deductions on mortgages up to $750,000. Prior to the bill’s passage, that total was $1,000,000. This will have more of an impact on those who live in expensive housing markets, such as large metros. It’ll have a smaller impact in East Tennessee, where housing costs tend to be lower than places like The Bay Area in California, but it will still change the filing strategies of those with larger mortgages.
The new tax law encompasses more than 500 pages, so we can’t talk about every provision. However, these are three significant changes that could affect people in tax year 2018. If you have questions, please contact a financial advisor or tax professional to see how the new law will affect your specific situation.