How Tax Reform Affects Generation X

The Tax Cuts and Jobs Act of 2017 will affect virtually every taxpayer in some way, but it’s helpful to zoom in on different demographics to get a better idea of how tax reform will affect you in particular.

If you’re a part of Generation X, this one’s for you! We’ve also included a handy infographic to dive even deeper into tax reform for Gen X taxpayers in different walks of life.

The basics: Tax brackets, deductions and the nixed personal exemption

Each tax bracket was adjusted to some extent, whether the income thresholds were raised (meaning that you can earn more money before moving up to a higher tax rate) or tax rates lowered. Virtually everyone will be subject to lower taxes in 2018, and you can check out the tax bracket tables for exact numbers.

The standard deduction has been almost doubled for each filing status, and some itemized deductions have been repealed; the exceptions are state and local income taxes, mortgage interest, medical expenses, disaster losses, charitable contributions, and other deductions not subject to the 2% floor (check the Tax Guide for deduction caps and phaseout amounts). Taxpayers can still itemize deductions, but many won’t have enough individual deductions to merit itemizing.

The personal exemption has also been repealed, so you won’t have an individual tax break for each member of the household. In many cases, the new standard deduction amount and Child Tax Credit amount offset the loss of the personal exemption.

Children, dependents and alimony payments

The Child Tax Credit amount per child is doubling from $1,000 to $2,000, and $1,400 of that amount will be refundable—so if you have a child (or children) and your tax liability is reduced to zero, you could still get a refund from the Child Tax Credit.

Do you have any dependents who aren’t children? There is now a temporary $500 nonrefundable credit for older qualifying dependents like parents, college students or other family members who rely on you for day-to-day expenses. If your dependent doesn’t have a Social Security Number, an ITIN (Individual Taxpayer Identification Number) can be used instead.

Married taxpayers filing jointly with an AGI greater than $400,000 and all other taxpayers with an AGI greater than $200,000 will not qualify for the credit due to income phaseouts.

As for alimony, payments will not be deductible by the payer or taxable to the recipient beginning with new divorces in 2019—divorces during or before 2018 will be treated as they were prior to the new law change.

Section 529 plans

These school savings accounts have a new distribution limit of $10,000, which now applies per student instead of per account. They can also now be used for public, private or religious education in elementary or secondary schools, and for homeschooling expenses.

See our Tax Reform 101 section for a list of qualifying expenses.

Mortgage interest

Single taxpayers can deduct interest on up to $750,000 of new mortgage debt (down from the former $1,000,000 limit), and married couples filing separately can deduct interest on up to $350,000 (down from the former $500,000 limit). In either case, the amount you can deduct will be smaller if you’re over the threshold. Mortgage loans that started before December 15, 2017 will not be affected by the new deduction limit.

There’s a new caveat for deducting interest on home equity loans and lines of credit: Interest paid will no longer qualify for a deduction if the money is used to pay off credit card debt, student loans, or any other reason unrelated to buying, building or substantially improving the home that secures the loan.

Other tax situations

Generation X falls in a pretty broad category—taxpayers who fall in the age range could be in several fundamentally different stages of life. Some Gen Xers may want to be aware of the new QBI deduction for freelancers and small businesses, updates on medical expenses and insurance, and other tax situations.

Be sure to read through our Tax Reform 101 section of the Tax Guide for a more thorough overview of the most significant changes from the Tax Cuts and Jobs Act of 2017.