Republican lawmakers released the details of their tax code rewrite on Friday, which reconciles differences between the House and Senate bills.
Several of the most anticipated changes — such as a significant increase in the standard deduction and the curtailing of state and local income tax breaks — made the final cut. Some of the most controversial proposals, like eliminating the medical deduction, were wiped away.
Many of these provisions are temporary, however, and are set to expire after seven years.
Tax Brackets
What’s in place now:
Seven brackets, with a top rate of 39.6 percent, which people pay on income they earn beyond $470,700 for couples filing their taxes jointly or $418,400 as an individual.
What’s in the new plan:
Seven brackets, with a top rate of 37 percent, which married people filing jointly will pay on income they earn in excess of $600,000. If you’re single, the top rate applies to income earned beyond $500,000.
Exemptions, Credits, Standard Deductions
What’s in place now:
If you’re single, the standard deduction is $6,350. Add in exemptions, and you’re up to $10,400.
Married without children? That’s $12,700 for the deduction and $20,700 with exemptions.
Continue reading the main storyIf you’re married with two children, the deduction-plus-exemptions figure goes up to $28,700. There is also a $1,000 tax credit per child.
What’s in the new plan:
The standard deduction is temporarily increased to $12,000 for singles and $24,000 for married couples filing joint returns.
The child tax credit is increased to $2,000 for each child — and up to $1,400 of that can be delivered in the form of refundable credit, which means taxpayers can receive money back even if they have no tax liability. (Taxpayers may also reduce their tax bill by up to $500 for other dependents who are not children.)
But that all changes in 2025, when the deductions and exemptions revert to current law.
State and Local Tax Deductions, and Mortgage Interest
What’s in place now:
You can generally deduct the amount you pay for state and local income taxes, including property taxes, on your federal income tax return. You can also deduct the interest you pay each year on mortgage debt up to $1 million, a cap that can cover multiple homes. Plus, you can generally deduct up to $100,000 in interest you pay on a home-equity loan or line of credit.
What’s in the new plan:
Taxpayers may deduct only up to $10,000 total, which may include any combination of state and local taxes, including property taxes (also sales taxes). But don’t try to prepay your income taxes before year-end to circumvent the new limit. The tax proposal is one step ahead of you and your accountant and won’t allow it.
You can also deduct the interest paid on mortgage debt up to $750,000. But if you bought a property before Dec. 15, you can still deduct interest up to $1 million (the limit under current law). Home equity loan interest is no longer deductible for anyone.
Medical Expenses
What’s in place now:
You can deduct out-of-pocket medical expenses that exceed 10 percent of your adjusted gross income (but not the expenses that amount to the first 10 percent). This is particularly useful for elderly people and others with lower incomes who need regular assistance and care.
What’s in the new plan:
In 2017 and 2018, you can deduct out-of-pocket medical expenses that exceed 7.5 percent of adjusted gross income.
Estate Taxes
What’s in place now:
In general, you pay taxes on inherited property at a 40 percent rate, but rules waive that tax for estates up to $5,490,000.
What’s in the new plan:
The baseline exemption amount doubles to $10 million. It applies to the estates of people who die after Dec. 31 but before Jan. 1, 2026 (and also to gifts made during that time frame).
Pass-Through Businesses
What’s in place now:
People who own small businesses of various sorts generally pay income taxes based on the normal rate for individual taxes. Often, they are involved in or run partnerships, sole proprietorships, limited liability companies and S corporations.
What’s in the new plan:
Starting next year and before Jan. 1, 2026, individuals can generally deduct 20 percent of their qualified business income from a partnership, S corporation and sole proprietorship. There are limits, however, including a phaseout for the deduction that begins at $157,500 of individual income and $315,000 of income for couples filing jointly.
529 Plans
What’s in place now:
Your money grows free of any capital gains taxes and you can withdraw it tax-free to pay for higher education expenses.
What’s in the new plan:
Nothing changes with higher education, but you will also be able to withdraw up to $10,000 each year, per child, to pay for private or religious school and receive the same tax benefits. Families participating in home schooling can also take out up to $10,000 a year to use for educational expenses.
Losses for Fires and Floods
What’s in place now:
If you’re a victim of a house fire, flood, burglary or similar event, you can generally deduct losses — as long as each loss is more than $100 and all losses collectively exceed 10 percent of your adjustable gross income.
What’s in the new plan:
Starting next year, taxpayers can still deduct these losses using the same rules — but only if the loss happened during an event that the president officially declared to be a disaster.
Alimony
What’s in place now:
Alimony is a deductible expense for people paying it, and those who receive it must pay income taxes.
What’s in the new plan:
Divorce would become a bit more burdensome for the ex-spouse who pays alimony because it would no longer be a deductible expense. But the person receiving the payments would no longer need to pay tax on the income received. The change would take effect for divorce and separation agreements executed starting in 2019.
The new rules will apply to any modified agreements “if the modification expressly provides that the amendments made by this section apply to such modification.”
Moving Expenses
What’s in place now:
Taxpayers can deduct moving expenses — even if they do not itemize their tax returns — as long as the new workplace is at least 50 miles farther from the old home than the old job location was from the old home. (If you had no workplace, the new job must be at least 50 miles from your old home.)
What’s in the new plan:
Moving costs would generally no longer be a deductible expense starting in 2018, though it allows some exceptions for members of the military.
Tax Preparation
What’s in place now:
You can usually deduct the amount your tax preparation specialist billed you or any similar tax-related expenses, like software you purchase and the fee to file your forms electronically.
What’s in the new plan:
Taxpayers would no longer be able to take this deduction.
Riding a Bicycle to Work
What’s in place now:
You can exclude up to $20 a month from your income for expenses related to regular bicycle commuting, as long as you are not receiving other pretax commuting benefits from your employer.
What’s in the new plan:
Starting next year, bike expenses are no longer deductible.
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WHAT HAS BEEN LEFT UNCHANGED
STUDENT LOAN INTEREST The House had proposed to repeal the deduction for student loan interest, but the final bill has no repeal.
ADOPTION ASSISTANCE PROGRAMS The House had proposed to repeal the deduction for financial assistance that an employer may provide when adopting a child, but the final bill has no repeal.
DEPENDENT CARE ACCOUNTS At one point, the House had proposed to eliminate workplace dependent care savings accounts that allow employees to put away $5,000 free of income taxes each year. It later altered the provision to have the accounts disappear in 2023. The Senate never proposed any change, and there is no change in the final bill.
TUITION WAIVERS Employees of educational institutions who receive reduced tuition — or a waiver — for themselves, spouses or dependents are generally not taxed on that income. This is particularly helpful for certain graduate students; their tuition is waived as part of arrangements in which they teach or perform research at their university. The House had proposed to tax the benefit, but the final bill does not have this provision.
EMPLOYER-PAID TUITION When employers pay your tuition for continuing education, the amount they pay is not taxable income for you as long as it meets certain conditions and amounts to no more than $5,250 a year. The House had proposed that the benefit be taxable, but the final bill does not have this provision.
CAPITAL GAINS WHEN SELLING A HOME With some exceptions, a married couple filing their taxes jointly can exclude up to $500,000 in capital gains on the sale of a home, as long as they have used it as a primary residence for at least two of the last five years. A single individual can exclude up to $250,000. The House and Senate both proposed to make this rule more strict, but neither provision prevailed, and the rule will remain the same.
USE OF SAVINGS BONDS FOR HIGHER EDUCATION You do not pay taxes on interest from certain EE United States savings bonds if you use the proceeds for qualified higher education expenses. The House had proposed to eliminate this exception, but the final bill does not have this provision.
TEACHER DEDUCTION Teachers can take a $250 deduction for money they spend on certain job-related and classroom expenses. The House wanted to eliminate the tax break, while the Senate wanted to double it temporarily. Neither proposal made the final bill, and the rule will remain the same.
401(K) TAX BREAK Before the House and Senate introduced their bills, there were rumors they might try to restrict the amount of pretax money that people could put into their workplace savings accounts. They did not try to do this, though, and the rules for these accounts remain the same.
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