Last week, the Senate released its tax proposal. It is a little better for my family than the House proposals and original framework that I blogged about in more detail previously (here and here).
The big beneficial difference for us in the Senate Plan is the change in the child tax credit which increases the phase out level to a million dollars in income so we would now qualify for child tax credits. However, my youngest is 17 next year so we would only get $1,650 credit next year, before dropping to a $500 dependent credit the next year.
Add it all up and my tax increase for next year would be about $2,100 under the Senate bill, compared to my earlier estimates of $3,000 for the House bill and $4,000 for Trump "framework". However, our 2019 tax increase would likely be back over $3,000 as my youngest turns 18.
There are significant differences in the plans on tax brackets, state and local tax deductions, mortgage interest deductions, and business income but these differences would have little or no effect on our personal situation. Under all iterations of the Republican tax bills, we would fall back to the enhanced standard deduction, and thus lose benefits of personal exemptions and itemized deductions. As discussed in earlier posts, this would increase our taxable income by about $30,000, and that is the primary reason our tax bill would increase despite a marginal decrease in rates and elimination of the AMT.
P.S. (revised 11/22): I deleted a postscript note on taxability of tuition benefits as I received additional information about this item in the House tax bill. It appears my previous interpretation was incorrect.
A discussion of economic, business, and environmental issues of importance in the Central Valley.
Tuesday, November 14, 2017
Thursday, November 2, 2017
Update: Republican/Trump Tax Plan Would Raise My Taxes by about $3,000
A few weeks ago, I estimated the Trump tax plan would raise my families taxes by over $4,000 and most likely close to $5,000 per year. This morning, the detailed tax proposal was released and I have recalculated our tax increase to be between $2,500 and $4,000. [The range is primarily due to my uncertainty about whether we would receive a new credit for $300 per individual that did not qualify for the expanded tax credit. We would not qualify for the $1,600 tax credit due to my dependent children being 16 or over, and income phase outs.]
The three most significant changes:
- Tax bracket details: The most significant to me and most households is that the 12% tax bracket extends farther than the 15% tax bracket in current code. Specifically, under current law, the 15% bracket ends at around $76,000 for married filing jointly, whereas the Republican proposal would have a 12% rate up to $90,000 for married filing jointly. In my previous calculation, I assumed 12% rate ended at same income level as current 15% rate. This extended bracket saves me about $1,800 in taxes compared to my initial calculations. The proposal also retains the 39.6% rate for incomes over a million dollars but that doesn't affect my family.
- Property Taxes deductible up to $10,000: This is a compromise on the state and local tax deduction controversy. For my household, it wouldn't matter. It would bring our potential tax deductions from about $18,000 to just under $24,000, the new standard deduction, so we still wouldn't itemize. However, this could help reduce the hit on some California households.
- Future mortgage interest deduction capped at a $500,000 mortgage, reduced from current cap of $1 million. This could have interesting effects on California housing, especially in high-cost coastal areas. In some ways, you could think of this as paying for the return of the property tax deduction. If you are buying a Bay Area house with a jumbo mortgage, you will still get to deduct property taxes under this new proposal but that will be offset by this new limit on your ability to deduct mortgage interest.
So people like me are still facing an unpleasant tax increase from the Republican/Trump plan, even if it is not quite as large as I originally thought.
Subscribe to: Posts (Atom)