The new Tax Cut and Jobs Act, which makes broad changes to the income and estate tax codes, will have a significant impact on many taxpayers. Because it is so new and so complex, it will be some time before tax professionals fully understand those impacts. Fortunately, most of the law does not take effect until tax year 2018 for returns that will be filed in April 2019. Very few of the changes will affect tax returns being filed this spring.
However, there are some provisions of the new law affecting elderly or disabled people which should be noted, so that the bottom line of your tax return is not a complete surprise in 2019.
- The minimum threshold for deducting medical expenses is lowered to 7.5% of adjusted gross income for tax years 2017 and 2018 (down from 10% for tax year 2016). Individuals can take advantage of this change now on their upcoming income tax filings.
- Beginning in tax year 2018, individuals can no longer deduct interest paid on home equity loans. There is no provision for grandfathering in preexisting home equity debt.
- The new law allows 529 plans, which were intended as tax-preferred savings accounts for college tuition, to be used under certain circumstances for school expenses for younger children, including educational therapies for disabled children. Also, money in a 529 plan may now be rolled over to an ABLE account (which is a special savings account for disabled individuals that does not affect their eligibility for public benefits, such as housing and medical care). These rules are very complicated, and you should consult your tax advisor before making any changes to your financial plan.
Lastly, the federal estate and gift tax exemption amount will double for people who die after December 31, 2017, to $11.2 million for an individual and $22.4 million for a married couple. That means that an individual can give away, during his or her lifetime or upon death, a total of $11.2 million without incurring any estate or gift tax liability, and a married couple can give away a total of $22.4 million before any estate or gift taxes would apply. Keep in mind, though, that this and all other tax changes under the Act are scheduled to sunset in December 2025.
If you have any questions about the issues presented above or care to discuss any other planning issues, please call us at 860-769-6938, visit our website at http://www.weatherby-associates.com or email us at info@weatherby-associates.com.
