Reinhart and Company Reinhart and Company

2020 Tax Update - Individuals

Tax Rates

Rate Single Filers Married Filing Jointly
10% Up to $9,875 Up to $19,750
12% $9,875 to $40,125 $19,750 to $80,250
22% $40,125 to $85,525 $80,250 to $171,050
24% $85,525 to $163,300 $171,050 to $326,600
32% $163,300 to $207,350 $326,600 to $414,700
35% $207,350 to $518,400 $414,700 to $622,050
37% over $518,400 over $622,050

Standard Deduction

The standard deduction is increased to $24,800 for married individuals filing a joint return, $18,650 for head-of-household filers, and $12,400 for all other individuals.

Personal Exemptions

Personal exemptions have been eliminated from 2020 taxes.

Deductions and Credits

Mortgage interest deduction. The mortgage interest deduction is limited to interest on $750,000 of acquisition indebtedness ($375,000 in the case of married taxpayers filing separately), in the case of tax years beginning after December 31, 2017, and beginning before January 1, 2026. For acquisition indebtedness incurred before December 15, 2017, the law allows current homeowners to keep the current limitation of $1 million ($500,000 in the case of married taxpayers filing separately).

The law also allows taxpayers to continue to include mortgage interest on second homes, but within those lower dollar caps. However, no interest deduction will be allowed for interest on home equity indebtedness.
*NOTE* - Loans that are used for
substantial improvements to a home (even if borrowed as a “home equity loan”) are classified by the IRS as “home acquisition debt” and the interest to this debt is deductible. Per IRC sec 163(h)(3)(B)(i)(I)

State and local taxes. Annual itemized deductions for all nonbusiness state and local taxes, including income taxes and property taxes are limited to $10,000 ($5,000 for married taxpayer filing a separate return). Sales taxes may be included as an alternative to claiming state and local income taxes.

Miscellaneous itemized deductions. All miscellaneous itemized deductions that are subject to the two-percent floor are temporarily repealed.

Medical expenses. For Tax years 2020 and forward the threshold for the deduction becomes 7.5 percent of adjusted Gross Income.

Alimony. For any divorce or separation agreement executed after Dec. 31, 2018, the IRS provides that alimony and separate maintenance payments are not deductible by the payer spouse. The provision that provided that those payments were includible in income by the payee spouse, has been repealed.

Moving expenses. The moving expense deduction is repealed through 2025, except for members of the armed forces on active duty who move pursuant to a military order and incident to a permanent change of station.

Moving expense reimbursements. The exclusion from gross income and wages for qualified moving expense reimbursements is repealed through 2025, except in the case of a member of the armed forces on active duty who moves pursuant to a military order.

Educator’s classroom expenses. There is no change to the allowance of an above-the-line $250 deduction for educators’ expenses incurred for professional development or to purchase classroom materials.

Education provisions

The student loan interest deduction remains unchanged at $2,500. The American Opportunity Tax Credit also remains unchanged providing for a maximum credit of $2,500.

Under the Tax Cuts and Jobs Act, Sec. 529 plans may distribute no more than $10,000 in expenses for tuition incurred during the tax year at an elementary or secondary school. This limitation applies on a per-student basis, rather than on a per-account basis.

The act also modified the exclusion of student loan discharges from gross income by including within the exclusion certain discharges on account of death or disability.

Family Incentives

The child tax credit is limited to $2,000 per qualifying child. Up to $1,400 of that amount would be refundable. The adjusted gross income phase-out thresholds at an adjusted gross income of $400,000 for joint filers ($200,000 for all others).

The child tax credit provides for a $500 nonrefundable credit for qualifying dependents other than qualifying children.

Alternative Minimum Tax

The Tax Cuts and Jobs Act retains the alternative minimum tax (AMT) for individuals with modifications. It temporarily increases (through 2025) the exemption amount to $109,400 for joint filers ($70,300 for others, except trusts and estates). The new law also raises the exemption phase-out levels so that the AMT will apply to an income level of $1 million for joint filers ($500,000 for others). These amounts are all subject to annual inflation adjustment.

Cares Act Rules

  • Recovery rebate credit: $1,200 ($2,400 for married filing jointly) plus $500 per qualifying child. Phases out for incomes above $150,000 (for joint filers), $112,500 (for heads of household), and $75,000 (for other individuals).
  • 10% early-withdrawal penalty waived: On up to $100,000 of retirement distributions made for coronavirus-related reasons.
  • Required minimum distributions (RMDs) suspended: For certian defined contribution plans and IRAs.
  • Charitable contributions: For nonitemizers, above-the-line deduction for cash donations of up to $300. For itemizers, qualified contributions disregarded for purposes of 60%-of-adjusted-gross-income (AGI) limitation; qualified contributions deductible up to 100% of individual's contribution base less amount of all other charitable contributions for which charitable contribution deduction is allowed.
  • Excess loss limitation repealed: The Sec. 461(I) limitation is repealed for 2020.

Economic Impact Payment: $600 ($1200 for married filing jointly) plus $600 for each qualifying child. Phases out for incomes above $150,000 (for joint filers), $112,500 (for heads of household), and $75,000 (for individuals).