With the latest tax bill finalized by lawmakers, Americans now wait in anticipation for the changes. There has been extensive coverage of both the politics and the specifics of the tax cut, but many questions still remain, especially for individuals and families. In simple language, these answers seek to address confusion surrounding the longevity of the tax provisions, impact on homeowners and buyers, and how the law will change the child tax credit.
Tax Cut: Will Provisions in the New Tax Law Expire?
The latest tax changes have been presented to the public as providing ongoing benefits. The current tax laws have remained relatively unchanged for so long that a majority of the public assumes that the latest cuts will go on indefinitely. There is actually a finite period for the latest provisions, which will come as a surprise to some.
- The Majority of corporate provisions are permanent and a new law would need to be passed to change these.
- Tax cuts for individuals are not permanent, and most will expire after a period of eight years. Lawmakers will have the option to extend these, but there is no guarantee of what will happen in the future.
The disparity between corporate and individual provisions has been a point of contention, with many opponents of the tax bill claiming that the law is simply a gift to the wealthy and to corporate America. The fact is that millions of Americans will get tax cuts, but the actual financial benefits will taper off within the next decade.
What Does the Tax Bill Change for Homeowners and Future Buyers?
For future buyers, the most significant change will be the reduction in deductions that are allowed for interest on a mortgage loan debt. Up until this point, new buyers could claim deductions on debt of up to $1 million. The latest changes will reduce the figure to $750,000.
The average home buyer, particularly first home buyers, will not feel any negative impact of this change, however, move-up buyers and luxury property buyers will likely be affected. This is one aspect of the tax bill that directly favors those who are likely to be on middle incomes. It could be argued that those likely to lose potential deductions are also those that can most afford it.
How Will the Law Affect Child Tax Credit?
When the new bill is signed into law, parents will be able to get double the current child tax credit. The change takes the credit from $1,000 per child under age 17, up to $2,000 per child. This will effectively allow parents to claim up to $1,400 as a refund, depending on certain conditions. There are critics who say that other provisions would offset the gains made here, but we’re yet to see the tax law in full effect.
As it stands right now, parents are likely to gain slightly more in pocket from child tax credits, although it is unlikely that the maximum refundable amount would be available in most cases.
President Donald Trump is likely to sign the tax bill into law by the first week of January 2017.
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