5 Most Common Questions About The Tax Cuts & Job Act
Apr. 23, 2018 Article

Five Most Common Questions About The Tax Cuts & Jobs Act

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New Tax Laws Could Impact Your 2018 Tax Filings

Question #1: Will it still make sense for me to itemize deductions on my taxes?

Answer: With the new tax plan, there is a standard deduction of $24,000 for couples and $12,000 for singles. If your itemized deductions are over $12,000 or $24,000, respectively, then it may make sense to utilize those vs. the standard deduction.

Keep in mind, though, that some of the items you may have deducted in the past, now have monetary limits or are no longer able to be deducted for example, state and local income taxes (SALT) are now limited to $10,000.

Question #2: Will I still be able to deduct interest from my home equity line of credit?

Answer: You can no longer deduct interest on your home equity loan unless it is used to substantially improve a qualified residence or acquire a second home. So, if you use you HELOC to purchase a car, as an example, that interest will no longer qualify. In addition, there are new rules on deducting your mortgage interest.

Question #3: I utilize a 529 plan to save for my child’s college education. Is it still a viable savings tool under the new tax laws?

Answer: Yes. In fact, the uses for the funds in the 529 plan have been expanded under the new Tax Cuts and Jobs Act. The new law permits qualified education expenses to include elementary school and secondary school, not just college.

However, it limits the 529 distribution for elementary and secondary school to $10,000 annually per beneficiary.

Question #4: With the passing of the Tax Cuts and Jobs Act, and the changes to the estate and gift tax, I’ve been advised to review my estate plan. Why is that?

Answer: Prior to 2018, the tax laws permitted you to transfer $5 million ($10 million if married) during life, or upon death, without being taxed. The new tax law doubles the exemption amount.

For 2018, with inflation adjustments factored in, individuals are expected to have an $11.2 million exemption ($22.4 million if married). This exemption increase is temporarily in effect for 2018 through 2025.

It’s a good time to review your estate plan to ensure it will accomplish what you initially intended it to. With the temporary increase in lifetime giving, it’s also a good time to explore new planning opportunities, such as:

  • Qualified Personal Residence Trusts (QPRTs)
  • Grantor Retained Annuity Trusts (GRATs)
  • Asset protection trusts
  • Spousal trusts
  • Gifting family LLC interests

Question #5: Will the new plan impact my state tax filings?

Answer: The simple answer is, it depends. With the changes to the standard deduction limits, many tax payers will be begin using it instead of itemizing deductions. You’ll want your tax professional to look at how this will impact your state tax filings because some states may require you to use the state’s standard deduction, which could be lower than the federal. If so, you may find your state tax amount increase since your state’s AGI will be higher with the state’s standard deduction.

The information contained herein is not intended to be personal legal, investment or tax advice or a solicitation to buy or sell any security or engage in a particular investment strategy. Nothing herein should be relied upon as such. The views expressed are for commentary purposes only and do not take into account any individual personal, financial, or tax considerations. Please consult with a tax professional. There is no guarantee that any claims made will come to pass. Investors should consider the investment objectives, risks, charges, and expenses associated with 529 plans before investing. More information about specific 529 plans is available in each issuer’s official statement, which should be read carefully before investing.

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