How new tax plan may affect you
By Jill Schlesinger Jill on Money
A broad outline of the Republican tax plan has been released, and you may be wondering how it would affect you. Unfortunately, details are scant. Before determining the impact, here are some of the questions that must be resolved.
Q: What are the income levels to which the new tax brackets apply?
A: There would be three brackets — 12 percent, 25 percent and 35 percent — with the possibility of a fourth added for high earners. What’s missing is the breakdown of income levels to which the new rates apply.
Q: Will the increase in standard deduction offset the loss of personal exemption?
A: The standard deduction would jump from the current $6,350 for individuals to $12,000 ($24,000 for those married filing jointly). Those who earn less would pay no income taxes. However, the plan also eliminates the personal exemption of $4,050 for taxpayers, spouses and dependents, so larger middle-class families may not see a reduction.
Q: What will the child tax credit be? A: The plan says that it would increase from $1,000 per child (limited to single filers with taxable income up to $75,000; up to $100,000 for those married filing jointly) to an unspecified amount. There also would be a new $500 credit for nonchild dependents, such as elderly parents.
Q: Which itemized deductions make the cut?
A: The plan would only keep the writeoffs for mortgage interest and charitable donations. State and local tax deductibility would be repealed, which would raise approximately $1 trillion over the next decade. There is already big pushback from Republican lawmakers in high tax states, such as California, New York and Virginia. Medical expense and miscellaneous deductions are slated to go away. Additionally, the plan only “encourages” Congress to maintain tax breaks for higher education, retirement and work.
Q: Will there be any change to capital gains rates?
A: There was no mention of tinkering with the current top rate of 20 percent, plus the 3.8 percent tax on net investment income, which applies to income above $200,000 for single filers and $250,000 for married couples.
Q: Will the new plan abolish the stepup in cost basis at death along with the estate tax?
A: To make up for lost revenue associated with repealing the estate tax, Congress could eliminate the “step-up in cost basis at death.” This allows taxpayers to leave any asset to an heir at the valuation on the date of death. If your mother bought her home (or mutual funds) for $80,000, and when she dies it’s worth $300,000, you would inherit the asset as if you purchased it for $300,000. This is important because when you sell it, you could do so without having to pay capital gains tax. Whereas the estate tax repeal would only impact less than 1 percent of taxpayers, a change in step-up would likely impact 99 percent of them.
Q: How much will the tax cut cost? A: Early analysis from the nonpartisan Committee for a Responsible Federal Budget pegs the cost at $2.2 trillion over the next 10 years.
Contact Jill Schlesinger, senior business analyst for CBS News, at askjill@JillonMoney.com.