The standard deduction is the amount that you can deduct from your income before calculating your tax liability if you do not itemize your deductions.
Previous law: The standard deduction for married filing jointly is $12,700 for tax year 2017; $6,350 for single taxpayers; and $9,350 for heads of households, according to the IRS.
New law: The standard deduction for married filing jointly would increase to $24,000 for joint filers; $12,000 for single taxpayers; and $18,000 for heads of households, according to the TPC analysis. The increased deduction ends after 2025.
A personal exemption is the amount that you can deduct from your income for every taxpayer and most dependents claimed on your return.
Previous law: $4,050 per person, which means a married couple with two dependents would receive a personal exemption of $16,200.
New law: The personal exemption is eliminated. The exemption returns after 2025.
Child Tax Credit
Previous law: Married couples filing jointly who earn less than $110,000 can receive a tax credit of up to $1,000 for each child under 17 years old that they claim as dependents on their tax returns ($55,000 is the threshold for married couples filing separately; $75,000 for single, head of household, and qualifying widow or widower filers). (See the TurboTax FAQ on the tax credit for more details.)
New law: The credit would increase to up to $2,000 per child, and the first $1,400 would be refundable according to the TPC analysis, meaning the credit could reduce your tax liability below zero and you would still be able to receive a tax refund. The cut off for the tax credit would increase from $110,000 to $400,000 for married couples filing jointly. The expanded credit ends after 2025.
State and Local Tax Deductions
Previous law: Taxpayers who itemize their taxes can deduct state and local property and real estate taxes, and either state and local income or sales taxes. For more information, see our item “The Facts on the SALT Deduction.”
New law: The SALT deduction will be capped at $10,000. The deduction limit ends after 2025.
Previous law: Taxpayers who itemize their taxes can deduct interest payments on mortgage debt of up to $1.1 million. That includes up to $100,000 of home equity debt.
New law: For current mortgage holders, there is no change. But the deductible limit drops to $750,000 for new debt incurred after Dec. 31, 2017. Also, homeowners may not claim a deduction for existing and new interest on home equity debt, beginning Jan. 1, 2018. The mortgage deduction changes expire after 2025.
Medical Expense Deduction
Previous law: Taxpayers who itemize their taxes can deduct medical expenses that exceed 10 percent of their adjusted gross income, or AGI, according to the IRS.
New law: Taxpayers can deduct medical expenses that exceed 7.5 percent of AGI in 2017 and 2018, but the new deduction level ends Jan. 1, 2019.
Limits on Itemized Deductions
Previous law: Itemized deductions may be limited, and total itemized deductions may be phased out (reduced), if your adjusted gross income for 2017 exceeds $313,800 for married couples filing jointly or qualifying widows ($261,500 for single filers, $287,650 for heads of household and $156,900 for married couples filing separately), according to the IRS.
New law: The itemized deduction limits are repealed through the 2025 tax year.
Inflation Rate Measure
Previous law: The IRS uses the Consumer Price Index for urban consumers to adjust tax bracket thresholds and other tax provisions for inflation. That includes such provisions as the standard deduction, the personal exemption, earned income tax credit and the alternative minimum tax, as the Tax Policy Center explains.
New law: The IRS would switch to an inflation index known as the chained CPI. As we have written, chained CPI is considered a more accurate measure, but rises somewhat more slowly than the traditional CPI. That would mean bracket thresholds and tax credits, for example, would rise more slowly. That could have the effect over time of pushing more people into higher tax brackets and reducing the purchasing power of tax credits.
Capital Gains Tax Rate
Capital gains are the profits realized from the sale of assets such as stocks or real estate.
Previous law: The profits on the sale of assets held for more than one year are eligible for a tax break. The 2017 tax rates for the profits gained from the sale of such assets: “For 2017, the long-term capital gains tax rates are 0, 15, and 20 percent for most taxpayers. If your ordinary tax rate is already less than 15 percent, you could qualify for the zero percent long-term capital gains rate. For high-income taxpayers, the capital gains rate could save as much as 19.6 percent off the ordinary income rate.”
New law: No changes.