Tax Reform Explained – Changes to Consider
Insurance
The individual mandate was a key provision of the Affordable Care Act requiring everyone to have health insurance. Individuals who did not qualify for an exemption and chose not to purchase insurance faced a range of tax penalties, depending on income.
Starting Jan. 1, 2019, consumers who do not purchase health insurance will no longer face penalties.
Alimony
In the past the individual paying alimony or maintenance payments could deduct payments from their income. The person receiving the payments included them as income.
Now the person making alimony or maintenance payments does not get to deduct them, and the recipient does not claim the payments as income. This goes into effect for any divorce or separation agreement signed or modified on or after Jan. 1, 2019.
Child Tax Credit
In the past the child tax credit was $1,000 per child under the age of 17. Now the child tax credit has doubled to $2,000 per qualifying child. Up to $1,400 of the child tax credit can be received as refundable credit (meaning it can go toward a tax refund). The remaining portion is non-refundable but can reduce taxes owed.
The new rule also includes a $500 non-refundable credit per dependent other than a qualifying child.
Gains On Sale Of Home
Old rule was Homeowners could exclude up to $250,000 (or $500,000, if married filing jointly) of gains made when selling their primary residence, as long as they owned and primarily lived in the home for at least two of the five years before the sale.
Now Homeowners can still exclude gains up to $250,000 (or $500,000 if married filing jointly) when they sell their primary residence, but they have to have lived there longer. People who sell their homes after Dec. 31, 2017 now have to use the home as their primary residence for five of the eight years before the sale in order to claim the exclusion. It can only be claimed once in a five-year period.
Takeaway
The Tax Cuts and Jobs Act of 2017 is the biggest piece of tax reform legislation that’s been enacted since the landmark Tax Reform Act of 1986. Above are just some of the highlights of the the changes that took effect. It’s expected to have a major impact on individual taxpayers in 2018. Want to learn more? Call us today 256.489.1478 or schedule an appointment now!
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