Cover Story - Trump Tax Plan: Top Five Changes for Seniors
On December 22, 2017, President Trump signed the long-awaited tax bill into law. How will the new tax law affect seniors and the families who love and care for them? Certified Elder Law Attorney Barbara Boone McGinnis lists the top five changes that are expected to impact seniors.
#1: Standard Deduction Increases
The standard deduction will nearly double under the Trump tax plan. The plan calls for increasing the standard deduction to $12,000 for individuals and $24,000 for married couples filing jointly. Before the change, the standard deduction was $6,350 for individuals and $12,700 for married couples. “For seniors who don’t itemize, this could lower their overall tax bill,” noted Barbara.
#2: Mortgage Interest Deduction Limited
The new tax plan calls for changes to the mortgage interest deduction. Currently, homeowners who itemize their taxes can deduct their mortgage interest payments on mortgages up to $1 million. The new law limits the deduction to mortgages up to $750,000 for new buyers, and current homeowners will be grandfathered in at the current level. “Many seniors don’t have mortgages and won’t be affected by this change,” Barbara said. “However, the new law abolishes the deduction on interest paid on home equity lines of credit. More seniors will notice this.”
#3: Estate Tax Deduction Doubles
While this sounds like a major change, it will affect only the richest families. Under current law, the estate tax (40%) applies when multimillionaires transfer property to heirs. The Trump tax plan calls for doubling the estate tax deduction to $11.2 million for individuals and $22.4 million for couples “This doesn’t eliminate the estate tax, it just means that wealthy families can transfer more money tax-free to their heirs, at least for a while” said Barbara. “The exemption reverts to previous levels in 2026.”
#4: Medical Expense Deduction Expands for 2017 and 2018
The new tax plan allows taxpayers to deduct medical expenses that are 7.5% or more of income. Before the bill, the cutoff was 10% for those born after 1952. The deduction increase will affect 2017 tax returns. “Many seniors don’t know which medical expenses qualify for the deduction,” Barbara noted. The IRS offers guidance at http://bit.ly/2EeMqWl or view an abbreviated list of qualified medical expenses at http://intuit.me/2CaCszp.
#5: Seven Tax Brackets, New Rates
The number of brackets hasn’t changed but the rates within each bracket have. The new brackets will have rates of 12%, 25%, 35%, and 37%. It’s worth noting that the highest proposed tax rate (37%) would apply to single taxpayers with an income threshold of $500,000 and to married couples earning more than $600,000. Under the current income tax brackets, the highest rate (39.6%) kicks in for single taxpayers earning more $418,401 or more and for married couples earning $470,701 or more. “If you’re a retired person in a more modest tax bracket, you won’t notice much of a change,” said Barbara.
The Trump tax plan helps businesses more than individuals. Business tax cuts are permanent while the individual cuts expire in 2025. “If you’re a senior with substantial wealth, you’ll notice significant changes,” Barbara added. “For most seniors, it will be business as usual.”