Tax Law: Should You Sell Your House Now?
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This is Your Money Matters from The Wall Street Journal. Welcome to Your Money Matters. I'm J.R. Whalen in New York. Just about every facet of the U.S. economy is affected by the sweeping tax overhaul bill approved by Congress this week. Today we'll look at several groups, families, homebuyers, home sellers, and people saving for retirement and how they'll fare under the new law. Let's start with families. We've heard a lot about how most of the tax benefits in the tax law expire in 2025. But in 2027, all but the wealthiest families in the country will pay more than they do under current tax laws. And Wall Street Journal reporter Anne Turgason joins us with details. So, Anne, families will see benefits from the tax bill right away, especially those with younger children.
Right. By younger children, we're really talking about people with children up to age 17. So it'd be like, you know, through age 16. And one of the big reasons is because the tax law doubles the child tax credit that's available. Currently, you can take a child tax credit of $1,000 per child. It's doubling to $2,000.
And the other thing in this bill that's very significant is the child tax credits.
Yeah, the child tax credits can really make a difference in terms of lowering taxes for many families. Obviously, it's going to depend on your individual situation. And if you're losing a lot of deductions, if you live in a high-tax state and you're losing a substantial part of your state and local tax deduction, that could really be... the determining factor for you. But when it comes to children, the tax bill doubles the child tax credit. Currently, you can take a child tax credit of $1,000 per child and that doubles to $2,000 per child under this new legislation. Also, very significantly, the legislation allows a lot more families to take that child tax credit. Currently, if you're a couple, a married couple, and you make more than $110,000 a year combined,
You can't take the credit, but that income level or threshold will rise to $400,000 combined for couples under the new tax bill.
How will the GOP tax bill affect families and who benefits most immediately?
So that's going to enable a lot more families to take advantage of this. So the tax credit also, that $2,000 tax credit is available for children under the age of 17. For people with dependents who are age 17 or older, they can claim a $500 tax credit per child or really per dependent.
Now, Anne, also in the bill, families that are in the upper 20%, they will have opportunities to save more. Is that right?
Yeah.
Right. So under the law, as it goes into effect on January 1st, those families will actually save substantially more. The Tax Policy Center estimates that they will save, on average, about $9,300 for the top 20% in 2018. In comparison, those in the bottom 20% of earners, the lowest 20%, are estimated to save about $210 a year on average in 2018. which isn't much of a benefit to the lower, in comparison to the lowers. In 2027, though, the lowest 20%, the second 20%, the third 20%, and the fourth 20% are all estimated to pay more than they pay now, whereas the top 20% is still estimated to pay less.
And that's been a big point of contention between the two parties and how they have debated this. Now, let's also focus on how retirement savings are affected under the tax bill. And it's sort of a mixed bag here. Savers do get more time to repay outstanding loans.
Right. So originally, if you remember back to October, there was discussion about big changes to 401k plans, including big changes in the tax deductions that you could take for making 401k contributions. Well, in the end, none of that showed up in this bill. Instead, there's really just two fairly minor provisions that are likely to affect 401k. 401ks and IRAs. The first one is a positive, and it affects 401ks. People who are in 401k plans can take, many of them can, many plans allow participants to take loans against their balances. It used to be that if you left the company, you basically had generally about 60 days to repay that loan. And if you didn't have the money to repay it, it was deemed to be a taxable distribution and you would end up owing tax.
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