Federal Tax Reform Highlights for Individuals

John Csargo

Federal Tax Reform Highlights – Provisions for Individuals

Lowers individual rates: The new law preserves seven tax brackets, but changes the rates that apply to: 10%, 12%, 22%, 24%, 32%, 35% and 37%.  Prior rates were 10%, 15%, 25%, 28%, 33%, 35% and 39.6%.

Standard Deduction: Standard deduction is increased, to $24,000 for couples filing jointly, $12,00 single.

Exemptions are eliminated, which in 2017 reduce taxable income by $4,050 each for taxpayers, spouses and dependent children.

Kiddie Tax Modified: Unearned income of a child is taxed at Trust and Estate rates.  Earned income is taxed at the child’s Single rate. Currently unearned income is taxed at parent’s rate.

Alimony – starting in 2019, alimony would no longer be deductible by the payor for new decrees. Payments would be excluded from the recipient’s income.

Medical expenses:For 2018 and 2019, expenses exceeding 7.5% of income are deductible; that percentage increases to 10% in 2020.

State and local tax deduction:Maximum of $10,000 for a combination of property and income taxes.

 Mortgage interest: Deductible for those who itemize. New mortgages on first and second homes limitation on interest to the first $750,000 borrowed is deductible. Interest on home equity loans is no longer deductible unless loan proceeds were used for improvements to home.

Charitable contributions: Deductible for those who itemize, and the current limitation of 50% of income is increased to 60%.

Miscellaneous itemized deductions are eliminated, which includes financial advisor fees, tax preparation fees, employee business expenses, etc.  Gambling losses are still deductible.

Casualty losses no longer deductible unless covered by specific federal disaster declarations

Phase out of itemized deductions eliminated

Child tax credit:  Increased to $2,000 per child in 2018 of which $1,400 is refundable; phases out when income exceeds $400,000

Individual mandate: Mandate requiring health insurance or face a fine is repealed starting in 2019.

Qualified Tuition Programs (§529 Plans): “Qualified higher education expenses” expanded to include tuition at an elementary or secondary public, private, or religious school, up to a $10,000 limit per tax year

Recharacterization of Roth Conversions: cannot be used to unwind a Roth conversion

Alternative Minimum Tax: Exemption is raised to $70,300 for singles, up from $54,300 today; and to $109,400, up from $84,500, for married couples.  The exemption begins to phase out at $1 million of income which is substantially higher than the prior law phase out.

Estate tax in 2018: Exemption increased to approximately $11 million. A married couple could pass on twice that amount or $22 million to their heirs free of federal tax.  The Minnesota estate tax exemption will be $2.4 million in ’18, $2.7 million in ’19 and $3 million thereafter.

For additional information on individual tax planning services please contact John Csargo, CPA, MBT, CFP at or 952.858.5553.


Why the State Tax Bill Matters to Minnesotans


Federal Tax Reform Highlights for Businesses