2020 Tax Law Updates

"Taxes are what we pay for civilized society."

— Oliver Wendell Holmes, Jr., U.S. Supreme Court Justice

Updated, Dec. 22, 2020: This story has been updated to reflect that the president signed the bill into law on Dec. 22.

(SOURCE) A Guide to the Tax Changes – FactCheck.org

Individual Alternative Minimum Tax-The AMT exemption amounts will increase to $70,300 for single filers and $109,400 for joint filers and will phase out for those taxpayers at $500,000 and $1M

Standard Deduction-The standard deduction for married filing jointly would increase to $24,000 for joint filers; $12,000 for single taxpayers; and $18,000 for heads of households. 

 Personal Exemption–The personal exemption is eliminated.

Child Tax Credit-The credit would increase to up to $2,000 per child, and the first $1,400 would be refundable meaning the credit could reduce your tax liability below zero and you would still be able to receive a tax refund. The cut off for the tax credit would increase from $110,000 to $400,000 for married couples filing jointly.

State and Local Tax Deductions- The SALT deduction will be capped at $10,000.

Mortgage Deductions-For current mortgage holders, there is no change. But the deductible limit drops to $750,000 for new debt incurred after Dec. 31, 2017. Also, homeowners may not claim a deduction for existing and new interest on home equity debt, beginning Jan. 1, 2018.

Medical Expense Deduction- Taxpayers can deduct medical expenses that exceed 7.5 percent of AGI in 2017 and 2018, but the new deduction level ends Jan. 1, 2019.

Limits on Itemized Deductions-The itemized deduction limits are repealed through the 2025 tax year.

Inflation Rate Measure-The IRS would switch to an inflation index known as the chained CPI. As we have written, chained CPI is considered a more accurate measure, but rises somewhat more slowly than the traditional CPI. That would mean bracket thresholds and tax credits, for example, would rise more slowly. That could have the effect over time of pushing more people into higher tax brackets and reducing the purchasing power of tax credits.

Capital Gains Tax Rate-No changes.

Estate Tax– 40 percent would apply to estates valued at more than $11.2 million ($22.4M for couples). 

Corporate Taxes-The top rate would be 21 percent, and the corporate AMT would be repealed

Pass-Through Business Taxes-Business owners can take a 20 percent deduction on their pass-through business income, with limits for those earning above $157,500 (single) and $315,000 (MFJ).

Revenue Impact

The changes in the tax code are expected to reduce federal tax revenues by an estimated $1.46 trillion over 10 years, according to the nonpartisan Joint Committee on Taxation.

Editor’s Note: Our full coverage of the Republican tax legislation can be found here.