Congress passed the Tax Cuts and Jobs Act in 2017. Let’s look at how this legislation could affect you.
Tax brackets reduced across the board
The 2020 tax brackets are: 10%, 12%, 22%, 24%, 32%, 35% and 37%.
The 37% bracket affects married people filing jointly, earning $622,051 in income, or single taxpayers earning $518,400 or more.
New tax brackets
Increased standard deduction; repeal of personal exemptions
Personal exemptions are suspended through 2025. These exemptions, previously allowed as an offset to AGI for the taxpayer, his or her spouse and dependents (but subject to phase-out rules for high-income earners), were $4,050 per person in 2017.
The standard deduction has nearly doubled, jumping to $12,400 for single taxpayers, and $24,800 for married couples filing jointly. This change benefits taxpayers who have not historically itemized their deductions, or whose itemized deductions have been less than this increased standard deduction amount.
If you are blind and/or age 65 or older, you may increase your standard deduction. (E.g. $1,650 if you file single or $1,300 per spouse if you file married filing joint).
New standard deductions
Fewer itemized deductions
Under the legislation, itemized deductions for state and local income, sales and property taxes are limited to $10,000. The cap on these deductions may increase taxes for taxpayers living in states with higher state-level income taxes or high property taxes. Many other itemized deductions have been eliminated—including the deductions for tax preparation fees and investment management fees. The phase-out rule that limited itemized deductions for high-income taxpayers has also been repealed.
Home mortgage interest deductions have been capped at $750,000, down from the old cap of $1 million. A deduction for home mortgage interest is also now limited to acquisition debt (suspending the deduction for home equity loans).
You may only deduct interest on acquisition indebtedness—your mortgage used to buy, build or improve your home—up to $750,000 ($375,000 for married taxpayers filing separately).
The charitable donation deduction has been largely retained. In fact, contributions of cash to a public charity can now be deducted up to 60% of the taxpayer’s AGI (up from 50%). However, charitable contributions are now denied for payments made in exchange for college athletic event seating rights.
Home mortgage interest deductions
Changes to gift and estate taxes
Gift and estate taxes remain, but the per-person exemption doubled to $11.58 million per person. The increased (doubled) exemption amount will continue to increase with inflation each year. Following 2025, the exemption is scheduled to return to the prior exemption, as then indexed for inflation.
New estate tax exemption
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 individual tax advice, our TIAA advisors can help educate you on the latest changes, and can participate in conversations with you and your tax professional regarding your financial situation.