2018 Tax Law Changes

For tax years beginning after December 31, 2016 and before January 1, 2019, medical expenses, for all taxpayers, are deductible to the extent that they exceed 7.5% of AGI.

In addition, the AMT preference related to medical expenses is eliminated.

For tax years beginning after December 31, 2017 the taxable income of a child attributable to net unearned income (the “Kiddie Tax”) will be taxed according to the brackets applicable to trusts and estates.

Beginning in 2018 (and continuing until 2026), Trusts and Estates will be subject to four tax brackets (10%, 24%, 35% and 37%) with the highest bracket applying to taxable income in excess of $12,500.

No longer is the tax status of the child’s parent(s) applicable in determining the tax on net unearned income of the child.

The earned income of the child will continue to be taxed as regular ordinary income rates applicable to a single individual.

Long-Term Capital Gains (and Qualified Dividends) have been subject to special maximum tax rates. The Act generally retains the maximum tax rate structure.
For 2018 the 15% rate applies once the following income limits are met: a. Joint returns - $77,200
b. Head of Household returns - $51,700
c. Single returns - $38,600
d. Married Separate returns - $38,600
e. Trusts and Estates - $2,600

For 2018 the 20% rate will apply to long-term capital gains and qualified dividends above these income levels:
a. Joint returns - $479,000
b. Head of Household returns - $452,400
d. Married Separate returns - $239,500
e. Trusts and Estates - $12,700

Prior to the Act, a 0% capital gain rate applied to capital gains where the taxpayer is paying in the 10% or 15% rate on ordinary income; a 15% capital gain rate applied to any taxpayer paying any other rate below 39.6%; and a 20% rate applied to the high-income taxpayers paying 39.6% on ordinary income.

Two significant changes were made to the AMT for the years 2018 through 2025. All of the changes will be subject to inflation adjustment in years after 2018.

a. The exemption amounts that were scheduled to be $86,200 for joint filers (one-half of that amount for separate filers) and $55,400 for unmarried taxpayers, for 2018, have been increased to $109,400 for joint filers ($54,700 for separate filers) and $70,300 for all others.

b. The AMTI threshold, above which the exemption is phased out $1 for every $4 of excess, has been increased to $1,000,000 for married taxpayers filing jointly and $500,000 for all others. These amounts were scheduled to be $164,100 for joint filers, $82,050 for separate filers and $123,100 for all other taxpayers.

Pursuant to the Act, the child tax credit is increased to $2,000 per eligible child for 2018 through 2025.

The income level at which the credit phase-out begins is increased to $400,000 for taxpayers filing married filing jointly and $200,000 for all others. The credit continues to phase out at a rate of $50 for every $1,000 that AGI exceeds the threshold amounts.

The refundability of the credit was also modified so that the earned income threshold is reduced to $2,500.
No child tax credit will be allowed unless the taxpayer provides the child’s Social Security Number.
The Act creates a new non-refundable $500 credit for each dependent (using the definition that exists currently) other than a qualifying child.

Under pre-Act provisions, a taxpayer could claim a child tax credit of up to $1,000 per qualifying child under the age of 17. This amount would be phased out by $50 for every $1,000 that the taxpayer’s AGI exceeded certain threshold amounts.

Effective for tax years 2018 through 2025, the deduction for moving expenses is suspended.

The deduction will still be available for active duty members of the Armed Forces who move pursuant to a military order and incident to a permanent change of station.

The $250 (as adjusted for inflation) deduction for eligible educators remains at that level.