Summary of Individual Tax Changes in the Tax Cuts and Jobs Act


The 2018 Tax Cuts and Jobs Act (TCJA) contains many tax law changes. The following summary covers the highlights of the TCJA for individuals. These changes sunset on December 31, 2025.

Click here to view a chart of the provisions below

New Income Tax Rates & Brackets

For tax years beginning in 2018 through 2025, the Tax Cuts and Jobs Act (TCJA) applies seven altered tax brackets to individuals based on filing status: 10%, 12%, 22%, 24%, 32%, 35%, and 37%. The top rate applies to taxable income over $600,000 for married individuals filing joint returns, or $500,000 for single individuals and heads of  households. The TCJA also reduces the tax brackets for estates and trusts to four: 10%, 24%, 35%, and 37%. Click here to view the Individual Tax Rates & Brackets

Standard Deduction Increased

For tax years beginning in 2018 through 2025, the standard deduction is increased to $24,000 for married individuals filing a joint return, $18,000 for head-of-household filers, and $12,000 for all other taxpayers. Inflation applies in tax years beginning after 2018. The current additional standard deduction for the elderly and blind is unchanged.

2017 2018
  • $6,350/$12,700
  • $12,000/$24,000

Personal Exemptions Suspended

Previously, taxpayers were allowed a personal exemption for themselves, their spouses, and any dependents. The TCJA effectively suspends the deduction for personal exemptions by reducing it to zero. This provision sunsets in 2026.

2017 2018
  • $4,050 for each household member
  • Suspended

“Kiddie Tax” Modified

Beginning in 2018, the rates for single individuals apply to the portion of a child’s taxable income attributable to earned income. A child’s taxable net unearned income is taxed at the trust and estate rates (see section above and the enclosed charts). The Kiddie Tax applies to a child if he or she is under age 19 at the end of the tax year or is a full-time student under age 24, with at least one living parent AND his or her unearned income exceeds $2,100.

2017 2018
  • Child’s net unearned income taxed at parent’s rate if parent’s rate higher than child’s
  • Child’s earned income taxed at single individual rate
  • Child’s net unearned income taxed per trust/estate brackets
  • Child’s earned income taxed at single individual rate

Capital Gains Thresholds Indexed

The TCJA maintains current maximum rates on net capital gains and qualified dividends (0%, 15% and 20%), but indexes the bracket thresholds for inflation in tax years beginning after 2017. For 2018, the 15% breakpoint is $77,200 for joint returns; $51,700 for heads of household; $2,600 for trusts and estates; and $38,600 for other unmarried individuals. The 20% breakpoint is $479,000 for joint returns; $452,400 for heads of household; $12,700 for estates and trusts; and $425,800 for other unmarried individuals.

New Deduction for Pass-Through Income

Previously, income from a pass-through entity (sole proprietorships, partnerships, LLCs, and S corporations) was subject to the tax rate of the entity’s owners or shareholders and reported on their individual returns. For tax years beginning after December 31, 2017 and before January 1, 2026, the TCJA adds a new deduction for taxpayers with qualified business income (QBI) from a pass-through entity. QBI is the net amount of “qualified items of income, gain, deduction, and loss” relating to any qualified trade or business  of the taxpayer. An individual taxpayer generally may deduct 20% of QBI.

The deduction cannot exceed the greater of:

  1. 50% of the W-2 wages with respect to the qualified trade or business (“W-2 wage limit”), or
  2. the sum of 25% of the W-2 wages paid with respect to the qualified trade or business  plus 2.5% of the unadjusted basis, immediately after acquisition, of all “qualified property” (tangible, depreciable property used and still available for use at the end of a given tax year).

The deduction does not apply to the trade or business of being an employee, nor to certain service businesses, such as those offering investment-type activities. However, the service-business exclusion  does not apply to taxpayers whose income does not exceed $315,000 married filing jointly or $157,500 for other individuals. The limitation is phased in for those taxpayers over the next $100,000 of income for married filing jointly taxpayers and $50,000 for others.

2017 2018
  • Subject to owner’s income tax rate
  • 20% deduction for domestic business profits, limited to greater of (1) 50% of W-2 wages or (2) 25% of W-2 wages plus 2.5% of the unadjusted basis of qualified property after wage limitation phase-in
  • Specified service businesses generally not eligible, except for taxpayers with taxable income <$157.5k/$315k (deduction phased-out over the next $50k/$100k)
  • W-2 wage limitation phased in for taxpayers with taxable income >$157.5k/315k (over the next $50k/$100k)
  • Special rules apply to certain income from PTPs and dividends from REITs
  • Trusts and estates are eligible for the deduction

New Limitations on “Excess Business Loss”

Prior rules limited the deduction of losses from farm activities for non-corporate taxpayers. For tax years beginning after December 31, 2017 and before January 1, 2026, the TCJA provides that the excess farm-loss limitation does not apply, and instead a non-corporate taxpayer’s “excess business loss” (deductions attributable to passive activities, to the extent they exceed income from passive activities) is disallowed. Under the new rule, excess business losses are not allowed for the tax year, but are instead carried forward and treated as part of the taxpayer’s net operating loss (NOL) carryforward in subsequent tax years.

2017 2018
  • Excess farm losses for individuals limited
  • Excess farm loss limitation replaced with limitation on excess business losses of an individual
  • Not allowed for tax year but carried forward as part of individual net operating loss (NOL)

Deduction for Casualty & Theft Losses Suspended

Previously, personal casualty losses (those resulting from theft or disaster such as flood) were available as itemized deductions subject to an adjusted gross income (AGI) threshold. For tax years beginning after December 31, 2017 and before January 1, 2026, the personal casualty and theft loss deduction is suspended, except for such losses incurred in a federally declared disaster. Personal casualty loss may offset personal casualty gain, but the excess may not be deducted.

If otherwise available, losses arising from a federally declared 2016 disaster area between 2018 and 2025 may be added to the standard deduction.

2017 2018
  • Deductible subject to 10% of AGI
  • Repealed except for losses from federally declared disaster areas.
  • Losses arising between 2018 and 2025 from 2016 federally declared disaster areas may be added to the standard deduction.

Gambling-Loss Limitation Modified

Prior rules allowed taxpayers to claim gambling losses only to the extent of winnings, while deductions connected to wagering (e.g. transportation, fees) could be fully claimed. For tax years beginning after December 31, 2017 and before January 1, 2026, the TCJA requires all gambling expense deductions and losses to be offset against winnings.

Child Tax Credit Increased

For tax years beginning after December 31, 2017 and before January 1, 2026, the child tax credit is  increased to $2,000 for each child under the age of 17, and $500 for certain non-child dependents. The credit is phased out for adjusted gross incomes over $200,000 single or $400,000 married filing joint, and it is refundable via the Additional Child Tax Credit up to $1,400 per child if the credit allowed exceeds the tax owed.

2017 2018
  • $1,000 credit per child under age 17
  • Phased out for AGI > $75,000/ $110,000
  • Refundable if credit exceeds tax owed via additional child tax credit
  • $2,000 credit per child under age 17 and $500 per non-child dependent
  • Phased out for AGI > $200,000 / $400,000
  • Refundable up to $1,400 per child

State & Local Tax Deduction Limited

Previously, state or local tax and property taxes paid by an individual were fully deductible. For tax years beginning after December 31, 2017 and before January 1, 2026, full deduction is suspended except for such taxes or paid in carrying on a trade or business. Partial deduction is permitted up to $10,000 of the aggregate amount of such taxes.

Prepayments of 2018 state or local income tax, made in 2017, will be treated as paid in 2018.

2017 2018
  • Fully deductible
  • Up to $10,000 of aggregate state/local and property taxes deductible
  • 2017 prepayments of 2018 state/local income tax treated as paid in 2018

Mortgage Interest Deduction Limited

For tax years beginning after December 31, 2017 and before January 1, 2026, the deduction for interest on home equity loans is suspended. The deduction for mortgage interest on a primary or secondary residence is limited to interest on the first $750,000 of debt. The lower limits do not apply to home loans taken out before December 15, 2017, or to such existing loans that are later refinanced. In tax years beginning after 2025, the previous limitations of $1 million mortgage debt and $100,000 home equity debt are restored, and taxpayers may deduct interest on such loans regardless of when they were taken out.

2017 2018
  • Interest deductible on first $1M of mortgage on primary or secondary residence, and first $100k of home equity debt
  • Interest deductible on first $750,000 of mortgage on primary or secondary residence
  • No home equity debt deduction
  • Existing mortgages grandfathered

Charitable Contribution Deduction Increased

For taxpayers who still itemize deductions after 2017, the 50% limitation for cash contributions to public charities and certain private foundations is increased to 60%. Contributions greater than 60% of a taxpayer’s “contribution base” may be carried forward and deducted for up to five years, subject to the ceiling each year.

2017 2018
  • Deductible subject to various AGI limits
  • Increased limitation for cash contributions from 50% to 60%
  • All other AGI limits unchanged

Alimony Deduction/Inclusion Rules Suspended

For divorce agreements executed after December 31, 2018 or executed before that date, but modified after it, alimony payments are not deductible by the paying spouse or included in the income of the receiving spouse. Income used for alimony is taxed to the paying spouse at the rates applicable to him or her.

2017 2018
  • Payments deductible by payer and taxable to payee
  • Not deductible to payer or taxable to payee
  • Applies to divorce agreements executed after 2018

Miscellaneous Itemized Deductions Suspended

For tax years beginning after 2017 and before 2026, the deduction for miscellaneous itemized deductions subject to the 2% floor is suspended. Taxpayers will not be allowed to deduct certain expenses (such as tax preparation fees) that previously could be deducted if they exceeded, in the aggregate, 2% of the  taxpayer’s AGI.

2017 2018
  • Total must exceed 2% of AGI to be deductible
  • Suspended

“Pease limitation” on Itemized Deductions Suspended

For tax years beginning after 2017 and before 2026, the TCJA suspends the limitation on deductions applied to higher-income taxpayers who itemized, commonly known as the Pease limitation. For taxpayers above a threshold around $300,000, their otherwise allowable amount of itemized deductions was reduced by 3% of the amount their AGI exceeded the threshold.

2017 2018
  • Applies to AGI > $261,500/$313,800
  • Suspended

Treatment of Moving Expenses Modified

For tax years beginning after December 31, 2017 and before January 1, 2026, the exclusion for qualified moving expense reimbursements is suspended, except for members of the Armed Forces on active duty (and their spouses and dependents) who move pursuant to a military order and incident to a permanent change of station.

The deduction for moving expenses, applicable for those incurred when starting a new job 50 miles farther from the taxpayer’s former residence than the old job, is also suspended, with the same exception for military moves.

2017 2018
  • Excluded from income
  • Repealed except as applied to military moves

Reduction of Medical Expense Deduction Threshold

Unreimbursed medical expenses paid for care of a taxpayer and his or her spouse and dependents are deductible subject to various AGI limits. For tax years beginning after December 31, 2016 and ending before January 1, 2019, the threshold on medical expense deductions is reduced to 7.5% for all taxpayers.

2017 2018
  • Deductible subject to various AGI limits
  • Deductible subject to 7.5% of AGI limitation for 2017 and 2018; percentage increases to 10% in 2019

Repeal of ACA Individual Mandate

The penalty applying to those who fail to maintain health coverage under the Affordable Care Act is repealed.

2017 2018
  • Penalty applies for those who fail to maintain health coverage
  • No penalty

Estate & Gift Tax Exemption Increased

In 2017, the basic exclusion amount for estates and gifts is $5.49 million per taxpayer. Estates and gifts above that threshold are taxed under 12 brackets topping out at 40% for taxable estates larger than $1 million. However, for decedents dying and gifts made after December 31, 2017 and before January 1, 2026, the exclusion amount is doubled to an indexed $10 million ($11.2 million in 2018).

2017 2018
  • Basic exclusion amount of $5.49M per taxpayer
  • 12 brackets topping out at 40% for taxable estates larger than $1M
  • Exclusion increased to $11.2M per taxpayer
  • Brackets unchanged

AMT Exemption Increased

The TCJA retains the alternative minimum tax (AMT), which is intended to prevent taxpayers with substantial income from using deductions, credits and exclusions to avoid tax liability. Under AMT, taxpayers “give back” various tax benefits, and the larger amount of that tax or the regular tax is owed. AMT has its own exemption amount, which is phased out at higher income levels.

For tax years beginning after 2017 and before 2026, the TCJA increases AMT exemption amounts to $109,400 for joint returns and $70,300 for single individuals. These exemptions begin to phase out at $1 million for joint returns and $500,000 for all other individual taxpayers. AMT taxable income exceeding the phase-out thresholds reduces the exemption amounts by 25% of the excess.

2017 2018
  • 26%/28% on alternative minimum taxable income
  • Exemption: $54,300/$84,500
  • Exemption phaseout starts at: $120,700/$160,900
  • 26%/28% on alternative minimum taxable income
  • Exemption: $70,300/$109,400
  • Exemption phaseout starts at: $500,000/$1,000,000

Qualified §529 Account Uses Expanded

Prior to the TCJA, Section 529 college savings accounts could only be used for qualified higher education expenses. If funds were used for any other purpose, the interest portion of each withdrawn amount was subject to both income tax and a 10% excise tax.

For distributions after December 31, 2017, qualified expenses are expanded to include tuition at elementary or secondary public, private, or religious schools, and expenses associated with home schooling, up to $10,000 per tax year.

2017 2018
  • Earnings subject to income and excise  taxes if withdrawn for non-qualified higher education expenses
  • Qualified expenses expanded to include tuition at elementary or secondary public, private, or religious schools, and expenses associated with home schooling, up to $10,000 per tax year

Certain Student Loan Discharges Excluded from Income

While a taxpayer’s gross income generally includes the discharge of his or her indebtedness, under certain circumstances the discharge of student loans is excluded; the Act adds to these circumstances. After December 31, 2017 and before January 1, 2026, an amount of student loan indebtedness discharged due to death or total permanent disability of the student is excluded from gross income.

2017 2018
  • Included in gross income
  • Excluded from gross income if discharged on account of death or total permanent disability of the student

Recharacterization of Certain IRA and Roth IRA Contributions

Previously taxpayers were permitted to recharacterize contributions and conversions of IRAs. The TCJA generally repeals existing law, with an exception for recharacterization of regular annual contributions, which will be allowed for traditional IRAs but not Roth IRA conversions. Thus, a person who converts a traditional IRA to a Roth cannot later change his mind and convert back.

2017 2018
  • Taxpayers permitted to recharacterize contributions and conversion of IRAs
  • Repealed, but recharacterization of regular, annual contributions will be permitted                 except for Roth IRA conversions

For more information or questions, please contact our tax professionals at taxalerts@windes.com or toll free at 844.4WINDES (844.494.6337).

For IRS documentation on the changes, visit our Tools & Resources page.

Learn more about our Tax & Accounting Services practice