Some of the biggest changes in the tax reform bill and how they might affect you

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Congress just approved a final tax bill on Wednesday.  So what’s the gist of the bill for individuals?

Carl Carlson from Carlson Financial says the bill is intended to simplify the process for taxpayers.

The bill also cuts income tax rates, doubles the standard deduction and eliminates personal exemptions.

Carlson also says it eliminates most itemized deduction items, so it’s estimated that 94% of taxpayers will take the standard deduction.

Taking the standard deduction should help the filers who are at the upper and lower extremes of income, lower extremes because they may not have had enough deduction items before, and upper extremes because they were previously seeing all their deductions being phased out if they made too much money.

Both groups will now be able to reduce their actual after-tax income using the standard deduction, Carlson said.

Here are the most common itemized deductions for the middle class and if they will be affected by the tax bill:

  • Charitable contributions – no change
  • Mortgage Interest – going forward, can only deduct the interest on first $750,000 of mortgage, down from $1,000,000. Interest on HELOCs can no longer be deducted. This change does not affect current mortgage-holders.
  • State and local taxes – limited to $10,000 of deductions
  • Some of these most common itemized deductions will stay in place, but unless they total over $12,000 ($24k for married), you’ll end up taking the standard deduction. May decrease the incentive to give more to charity.

If you are asking what health insurance has to do with this new tax bill, Carlson says it repeals the Obamacare tax on those without health insurance.

If taxpayers are not being penalized for not having health insurance, a large number of them are going to choose to not have it.

So in summary Carlson says the bill will mostly help low-income and high-income taxpayers and for everyone in between it will be on a case by case basis, with most likely minimal changes.

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