New Tax Law: What has changed and how does it affect you?
We’re starting 2018 with sweeping tax laws that bring non-profits some good news and some news that’s not so good.
- Deductions have been changed. Standard deductions will be nearly doubled. This will soften the blow of the elimination of personal exemptions. The personal exemption of $4500 deduction for each taxpayer that could be taken – including $4500 for spouse and each dependent – is gone 1/1/18. The standard deduction rises to $24,000 for couples and $12,000 for singles.
- Mortgage interest deduction will be limited to the first $750,000 you borrow. That’s down from the current rule, which lets you deduct interest on the first one million of debt. Existing loan debt will be grandfathered in. The new lower deduction applies to loans taken after December 15, 2017. Donors in high-priced real estate markets who pay a lot of mortgage interest and real estate taxes will still be itemizing. So will donors living in retirement communities whose fee include medical expenses. These individuals will still have tax incentive to give. Donors who do not have mortgage interest, real estate taxes and medical expenses may no longer need to itemize their deductions. Interest on second homes will still be allowed, but you’ll only be allowed to deduct the first $750,000 of interest on the combined value of loans on your first and second homes.
- Planned Gifts: Under the old law, donors could only deduct contributions to certain charities of up to 50% of their income to certain public charities. The rest carries forward to future years, but this limit may make planned gifts difficult for people living off tax-exempt income and savings. The new tax law increases the limit to allow donors to deduct contributions to certain charities of up to 60% of their income to certain charities.
- State and Local Taxes: An individual itemized deduction for state income taxes and local property will be capped at a total of $10,000 in 2018. However, property and sales tax paid by a business such as sole proprietorship on a business or on rental property will remain fully deductible.
- Donors who are age seventy and a half can still make a tax free Qualified Charitable Distribution directly from their IRA for up to $100,000 completely bypassing the above income limitation. Of course, the contribution isn’t eligible to be included in itemized deductions but it’s excluded from income so it’s even.
- The new law doubles the Estate Tax Exemption from $11 million to $22 million.
- The new law essentially repeals the Affordable Care Act’s individual mandate by changing the penalty for not having insurance to $0 beginning in 2019. This could increase the number of voluntarily uninsured people.