If you’re scrambling to keep up with changes enacted by the new tax bill before you file for 2017, you can relax (for now). The bill that was passed by Congress last December doesn’t affect last year’s taxes.
However, you’ll need to catch up on the new rules for next year, which means you should start planning now. To bring you up to speed, we’ve listed four changes that promise to have a big impact on the financial lives of millions of Americans.
(Of course, to find out if these changes impact your personal financial situation, contact a tax advisor.)
Say hello to a bigger standard deduction
The new bill increases the standard deduction for filers. This means that fewer people will have to itemize individual deductions, and can claim the new, bigger standard of $12,000 (individuals) or $24,000 (married couples filing jointly), which almost doubles the current standard. If you itemized in the past, the good news is you’ll have to do less paperwork and potentially receive a bigger refund.
…and goodbye to the personal exemption
Now for the not-so-good news. If you relied on personal exemptions to lower your tax rate for you, your spouse, and dependents, the new bill doesn’t allow it. Even if you receive financial relief from other areas of the reform package, ending the personal exemption may negate it.
An expanded credit for an expanding family
Parents may owe less under the new bill. The child tax credit has been doubled to $2,000 for children up to age 17, and expanded to cover married couples making up to $400,000. Additionally, the income limit for single parents has been raised to $200,000. So if you’re struggling to cover familial expenses, you should get additional relief starting next year.
New homeowner, smaller deduction
Would-be homeowners, depending on your finances and where you’re looking to move, you may want to reconsider your budget. Going forward, you’ll only be able to deduct the interest on up to $750,000 of your mortgage debt (reduced from $1 million). Current homeowners, however, won’t be affected by the new rule.