January 26

Tax Reform Act 2017


Every new year brings a new set of financial planning challenges and opportunities. With the passage of the tax reform bill at the end of 2017, the new year is no exception. These new rules represent the most sweeping change in the tax code in a number of years, with most of the new rules taking effect in 2018. The final version of law differed from several proposed versions in terms of what changed and what didn’t.

The number of tax brackets for individuals remains unchanged, the rates in each bracket are generally lower than before.

Here is are some highlights of the new law with some comments on how they might impact your financial planning in 2018 and beyond.

Higher standard deduction

One of the most prominent changes is the increase in the standard deduction. For married filers it almost doubles to $24,000 and increases to $12,000 for single filers. The standard deduction is available to all filers regardless of whether you are able to itemize deductions. In fact, the impact of this change, along with some other changes discussed below, will mean that many taxpayers will not be able to itemize in future years. This will negate the tax advantages of expenses such as charitable deductions, mortgage interest and some others.

Family and kids

Several aspects of the new tax laws are family friendly.

First, popular 529 savings plans can now be used to fund elementary and high school expenses in addition to the costs of college and higher education on a tax-free basis at withdrawal. This can potentially be a huge benefit for families sending their kids to private schools and can offset the loss of deductions elsewhere. Planning note here, if you use this money for elementary or high school tuition be sure to keep saving for your child’s college expenses.

The child-tax credit was expanded as part of the final negotiations to $2,000 per child for families earning up to $400,000. Part of the credit is refundable to low-income families as well. This partially offsets the loss of the personal exemption of $4,050 which goes away in 2018 under the new rules.

Mortgage interest

The new laws limit the mortgage interest deduction to interest on the first $750,000 in mortgage debt, down from the current $1 million. This doesn’t apply to existing mortgages.

This could impact your planning in a couple of ways. For those looking to buy a home in a high- cost area of the country, your house payment could become more expensive on an after-tax basis.

For home sellers this could serve to make selling a home in a high-cost area a bit tougher and could potentially reduce the price you receive. This could impact plans for move in retirement, or perhaps due to a job change.


This was one of the most controversial features of the new law. The deduction for state and local taxes remains intact, but it is capped at $10,000 annually (for both single and married filers).

This includes state and local income taxes, sales taxes and local property taxes.

For those in high tax states and local areas, this is a tax increase. A property tax bill of $10,000 or more on its own is not uncommon in many middle to upper-middle class areas across the county. When you add the state income tax in a number of states like California, New York, Illinois, Minnesota and others this translates to a serious tax hit for many.

Its too early to tell what, if any impact these changes might have. It could cause a migration of people from high tax states to lower tax areas. If this did happen, it could impact property values in these high cost areas. From a planning standpoint, this could be a good thing if you are considering buying a home, it could be detrimental if you are looking to sell your home say in anticipation of downsizing into retirement.

Fewer itemized deductions

A number of itemized deductions have been eliminated, reduced or capped. Among those eliminated:

  • Casualty and theft losses are eliminated in 2018 except for federally declared disasters as designated by the president.
  • The deduction for alimony paid goes away after 2018 (see below).
  • The deduction for unreimbursed business expenses also goes away.
  • You will no longer be able to deduct expenses for tax preparation or for investment advice.

Even though many popular deductions like the deduction for charitable contributions remain, the cap on state and local taxes along with the higher standard deduction rates may make more difficult for some to itemize in the future.

One tip is to bunch deductible expenses into a single year. For example, consider making several years’ worth of charitable deductions in a single year. Or, if possible, bunch medical expenses into a single year. While you might not be able to itemize every year with the higher standard

deduction levels, bunching expenses will allow you to maximize these deductions in certain years.


The new tax law eliminated the deduction for alimony by the person paying it for divorces that occur after 2018. From a planning perspective, if possible, try to have your divorce finalized this year if possible. We are certainly advocates of divorce, but if this is the inevitable result it makes financial sense for all concerned to conclude the process in 2018.

Impact on 401(k) plans and IRAs

Several of the initial proposals included a cap on the amount could be contributed to a 401(k) on a tax-deferred basis that were as low as $2,400. Thankfully this did not make the final version of the law and the contribution limits for 2018 remain at $18,500 with a limit of $24,500 for those who are 50 or over.

Contribution limits for IRA accounts remain unchanged for 2018 at $5,500 and $6,500 for those 50 or over.

One big change in the rules for Roth IRAs is included in the new law. Previously a conversion from a traditional IRA account could be recharacterized before the tax filing date for the applicable year. This basically allowed for a do-over of the conversion if the markets dropped drastically after the conversion had been executed. This was used to prevent paying taxes on a much higher amount. The new tax law eliminates this do-over, going forward a Roth conversion is now final once it is executed.

AMT changes

Some the earlier version of the proposed rules eliminated the alternative minimum tax (AMT). The final version raised the income limits for individuals before they are subject to the AMT. This will allow greater flexibility in investing and other areas for these families without the fear of triggering this tax originally meant for the richest families.


This is by no means meant to be a comprehensive guide to financial planning under the new tax rules. Everyone’s situation is different. We are certain additional issues and provisions of the rules will crop up as issues as the year goes on.

It should be noted that most of the provisions that pertain to individuals are set to expire in 2025. While there is no way to see into the future, it wouldn’t surprise us to see many changes in the new law down the road, especially if the Democrats come to control Congress and/or the White House.

Please feel free to contact us to discuss the impact of the new law on your situation and to review your financial situation in general. We are here to help.

Securities and advisory services offered through LPL Financial a registered investment advisor. Member FINRA/SIPC. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual

Prior to investing in a 529 Plan investors should consider whether the investor's or designated beneficiary's home state offers any state tax or other state benefits such as financial aid, scholarship funds, and protection from creditors that are only available for investments in such state's qualified tuition program. Withdrawals used for qualified expenses are federally tax free. Tax treatment at the state level may vary. Please consult with your tax advisor before investing. Non-qualified withdrawals may result in federal income tax and a 10% federal tax penalty on earnings.

This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.

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About the author

Gardner is a CERTIFIED FINANCIAL PLANNER and principal of Sherrill Wealth Management in Bradenton, Florida. He has spent 20+ years in the wealth management field helping families negotiate the various obstacles and opportunities that retirement provides them. Read More

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