Recap of the Proposed Tax Cuts and Jobs Act

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The House and the Senate are evaluating and reviewing tax reform legislation.
Let’s look at how this legislation could affect you.

Tax brackets reduced from seven to four

The newly proposed tax brackets will be: 12%, 25%, 35% and 39.6%. The amount of earned income that will be taxed at the 12% bracket will increase to $45,000 for single individuals and $90,000 for married couples filing jointly, and should lower the federal tax bill for people earning under these amounts.
The 39.6% bracket affects people earning $1 million in income for married couples, or $500,000 for others. It appears that those in this tax bracket will not receive the benefit of the 12% bracket as it will begin to phase out as their adjusted gross income reaches certain amounts.

Proposed tax brackets

Proposed Tax Brackets

Increased standard deduction

The standard deduction could double, jumping to $12,000 from $6,350 for single taxpayers, and $24,000 from $12,700 for married couples filing jointly. It could be indexed for inflation, meaning the 2018 amount for married couples, for example, would be set at $24,400. This change would benefit taxpayers that do not itemize their deductions, which, in most cases, are those people who have less than the cap in total deductions.

Proposed standard deductions

Proposed Standard Deductions

Fewer itemized deductions

Under the proposed legislation, there will no longer be itemized deductions for state and local income taxes, casualty losses, educator expense deductions, adoption expenses, tax preparation fees, student loans and medical expenses. The proposed plan would also do away with the personal exemption. Elimination of these deductions would increase taxes for taxpayers whose currently deductible expenses exceed the proposed standard deduction.
Home mortgage interest deductions would be capped at mortgages of $500,000, down from a current cap of $1 million. Property tax deductions, which are currently fully deductible, would be capped at $10,000.
The charitable-donation deduction would be retained.
Fewer Itemized Deductions

Home mortgage interest deductions

Mortgage Cap

Housing gain exclusion changes

Currently, people do not pay taxes on up to $250,000 (singles) or $500,000 (married couples) of gains on the sale of a personal residence if they both owned and used the residence for at least two of the prior five years. The new plan would keep the exclusion but require homeowners to have owned and used the personal residence for five of the previous eight years.

Duration change to exclusion

Duration Chnage to Exclusion

Elimination of estate tax (in 2024) and the Alternative Minimum Tax (AMT)

The legislation calls for the doubling of the estate-tax exemption or exclusion amount to $11.2 million per individual. It will increase with inflation each year until 2024 when the tax is scheduled to be eliminated.
The bill repeals the Alternative Minimum Tax, a parallel tax system designed to ensure that exemptions, deductions, credits and the like are not used to avoid paying taxes.

Proposed estate tax exemption

Proposed Tax Extension

How your TIAA advisor can help

Taxes have a significant impact on how much you can save and how much you will have in retirement.  While we don’t provide tax advice, our TIAA advisors can help educate clients on the latest changes, and can participate in conversations with them and their tax professional regarding their financial situation.
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This presentation is for general informational purposes only. It is not intended to be used, and cannot be used, as a substitute for specific individualized legal or tax advice. Additionally, any tax information provided is not intended to be used and cannot be used by any taxpayer for the purpose of avoiding tax penalties. Tax and other laws are subject to change, either prospectively or retroactively. Individuals should consult with a qualified independent tax advisor, CPA and/or attorney for specific advice based on the individual’s personal circumstances. Examples included in this presentation, if any, are hypothetical and for illustrative purposes only.

The information presented is based upon a current understanding of the proposed House and Senate tax reform legislation.  The final reform legislation may look very different from what is presented.
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