Franklin Loan Center 2018 Tax Change Briefing

The new 2018 Tax changes are now in effect, and to help our partners and clients we’ve put together some of the new rules that may affect your taxes in the coming year. We recommend for those partners or clients with complex tax situations to consult a tax professional or preparer to see how these changes may affect you. Below is a list of the most common items that will impact many filers in 2018:

RATE CHANGE:
Both individual and corporate rates have changed. The maximum individual rate is reduced to 37% and the corporate rate is now a flat 21%. The range for individuals is now 10% to 37%. The rate change could benefit you, or in some cases, cause your tax liability to go up.

STANDARD DEDUCTION INCREASED:
For standard filers, the standard deduction is being increased, this can lower your tax bill if you do not itemize deductions. However, there are no more personal exemption deductions allowed, so this may help or hurt you. You may need to try both to see which works in your personal situation.

INCREASED CHILD TAX CREDIT AND NEW DEPENDENT CREDIT:
The credit is increased for each child to $2,000 (up to $1,400 of which is refundable for each child) and each non-child dependent can now receive a new credit of $500. 

The phase-out thresholds for these credits are drastically increased. Married taxpayers filing a joint return can claim the full credits if their adjusted gross income is $400,000 or less ($200,000 for all others). The credits are fully phased out for married taxpayers filing a joint return when their adjusted gross income reaches $440,000 ($240,000 for all others). This means that many more taxpayers will be able to claim these credits in 2018 and beyond.

DISAPPEARING DEDUCTIONS:
Beginning with the 2018 tax year, if you itemize, you will no longer be able to deduct:

• State income tax and property taxes above $10,000 per year in total – for filers in higher tax states, this maximum will limit how much you can deduct on your federal taxes for state tax payments
• Moving expenses, with an exception for certain military – you can no longer deduct relocation and moving expenses for work on your itemized deductions
• Unreimbursed employee business expenses such as mileage, travel, entertainment, home office expenses, union dues
• Tax preparation and investment fees
• Mortgage interest beyond interest on $750,000 of acquisition debt, if you purchase a home after December 15, 2017. This is down from the previous $1,000,000
• Mortgage interest paid on equity debt (this is no longer deductible for any taxpayer)

NEW BENEFITS:
There are some new benefits and changes in the 2018 tax law including:

• The medical expense AGI threshold will temporarily drop to 7.5% of AGI for 2017 and 2018
• The AMT threshold is increased, so fewer middle income taxpayers will be subject to AMT
• The estate tax exclusion has nearly doubled, up to $10 million
• The annual gift tax exclusion remains the same, $14,000 for 2017 and $15,000 for 2018, but the maximum tax rate on gifts is 35%

SMALL BUSINESS BENEFITS:
Beginning in 2018, there will be up to a 20% deduction from qualified business income from a sole proprietorship, LLC (excluding those taxed as a C corporation), partnership, S corporation, and rental activities. The rules are incredibly complex, and you will most likely need the assistance of a tax professional.

• A 20% deduction is allowed for qualified business income for pass-through entity owners
• Business interest is limited as a deduction by 30% of gross income
• The domestic production activity credit is repealed
• Entertainment expenses are no longer allowed

As these changes are not simple, we suggest a separate appointment from your tax interview for 2017, to go over the changes that apply to your situation and to talk about how to maximize your tax benefit.

MISCELLANEOUS CHANGES:
There are many changes in the new tax law that range across a wide variety of rules changing, including:

• The individual health care mandate and the shared responsibility payment for lack of healthcare coverage has been eliminated. This will not take effect until 2019.
• The student loan interest deduction has been removed
• The credit for plug in electric vehicles has been eliminated

For a more detailed explanation of the coming changes, please join us for the State of the Mortgage Industry 2018, January 30th at 8:00 am in Rancho Mirage, CA. 

Franklin Loan Center is not a tax preparer or consultant, these items in no way represent a recommendation for an individual’s tax situation but rather a list of changes reflected in the new law. These items were sourced from Certified Public Accountants and are provided as a helpful starting point for keeping up with the new rules. Franklin Loan Center Licensed by the Department of Business Oversight under the California Residential Mortgage Lending Act, 4131316, CalBRE#: 001069837, NMLS#: 237653.