Child tax credit – Good News! The child tax credit has been Raised to $2,000 per qualifying child, those who are under 17, up from $1,000. A $500 credit is available for dependents who do not get the $2,000 credit.
The current Administration, in his Tax Cuts and Jobs Act of 2018, has Increased the Child Tax Credit by up to $2,000 per qualifying child and will be refundable up to $1,400, subject to income phaseouts. This is Up from the prior $1,000 amounts by the Obama Administration, and the refund was also previously limited to only being refundable if you filed for the “Additional Child Tax Credit”.
Phaseouts will begin with a modified adjusted gross income (MAGI) of more than $400,000 for married taxpayers filing jointly and more than $200,000 for all other taxpayers.
The Child Tax Credit amount that may be refunded is equal to 15% of earned income (see my post on the Earned Income Credit, which can be claimed separately as well) above $2,500. That amount is capped, and subject to income phaseouts
Estate tax – The estate exemption doubles to $11.2 million per individual and $22.4 million per couple in 2018.
In 2019, 13 states and the District of Columbia have an estate tax. And to boot, six have an inheritance tax. Estate tax is a tax on the transfer of property after death. The federal estate tax generally applies when a person’s assets exceed $11.4 million in 2019 and $11.58 million in 2020
Mortgage interest – Don’t Worry, Be Happy. The deduction for interest is capped at $750,000 for mortgage loan balances taken out after Dec. 15 of last year. The limit is still $1 million for mortgages that were established prior to Dec. 15, 2017. It is possible that lower- and middle-income homeowners will not need this deduction with the increased Standard Deduction at play.
Some points to note:
- The first change is that the deduction limit on your mortgage has been lowered from 1 million dollars to $750,000.
- The Standard Deduction has been Doubled to $12,000 for individuals and $24,000 for married families. A Big help.
- Finally, the deduction for home equity debt has been removed, as it was previously capped at $100,000.
- These changes only apply to homes purchased after December 15th, 2017.
Standard Deduction for 2019 increased, (from $12,000 to $12,200 for Single and Married Filing Separately filers, $24,000 to $24,400 for Married Filing Jointly and Widow(er) filers, and $18,000 to $18,350 for Heads of Household)
For 2020 – The Standard Deduction Increase for Singles or Married Filing Separately has increased by $200, to $12,400.
Head of household, your standard deduction has Increased by $300, up to $18,650.
For Married Filing Jointly, the standard deduction has Increased by $400, up to $24,800.
Contribution limits for retirement savings – Employees who participate in certain retirement plans ‒ 401(k), 403(b) and most 457 plans, and the Thrift Savings Plan – can now contribute as much as $18,500 this year, a $500 increase from the $18,000 limit for 2017.
Savings in IRAs – Savers who contribute to individual retirement accounts will have higher income ranges following cost-of-living adjustments. Note that the deduction phases out for individuals and their spouses who are covered by workplace retirement plans.
Unlike 2019, there was no increase in the max IRA contribution. The maximum IRA contribution has Increased by $500 over 2018, the first increase in 6 years.
The maximum IRA contribution limit , similar to 401Ks, is set annually by the IRS which sets limits that someone can contribute to their IRA plans. They increases in relation to the annual Consumer Price Index (CPI), which applies to both the Traditional and Roth IRAs. You can have each type of account (and multiples of each type), but the annual maximum contribution is for both types of plans and is a cumulative total for all of your IRA accounts combined, regardless of type.
Married couples – the phaseout range will vary depending on whether the IRA contributor is covered by a workplace retirement plan or not. When the spouse investing has access to an employer plan, the range is $101,000 to $121,000. For individuals who don’t have a retirement plan, but are married to someone who does, the phaseout has been raised to $189,000 to $199,000.
Married taxpayers filing a Separate return – the phaseout was not adjusted for those who are covered by a workplace retirement plan. That range is $0 to $10,000.
Contributions to Roth IRAs – For individuals who are single or the heads of their households, the income phaseout has been raised to $120,000 to $135,000. For married couples who file jointly, the range climbs to $189,000 to $199,000. The phaseout was not adjusted for married individuals who file a separate return. That is $0 to $10,000.
State and local taxes – The itemized deduction is limited to $10,000 for both income and property taxes paid during the year.
The state and local tax (SALT) deduction allows taxpayers of high-tax states to deduct local tax payments on their Federal tax returns. This typically affects high earners in high tax blue states such as California, New York, New Jersey. The Tax Cuts and Jobs Act has a cap on the SALT deduction. Starting with the 2018 tax year, the maximum SALT deduction available was $10,000. Previously, there was no limit. And you have to Itemize, not take the Standard Deduction.