The Tax Cut and Jobs Act passed by the Trump administration has made several changes to the tax law. In this article, let us look at the major provisions which many have an impacted US expats. Primarily,
1. No major changes to Foreign Earned Income Exclusion (FEIE) and Foreign Tax Credit (FTC)
There have not been major changes to FEIE and FTC. If you recall, these are the primary exemptions which are availed by most expats to avoid double taxation. The amount of FEIE which can be claimed every year increases as per the inflation rate. This amount was $ 102,100 for the year 2017 and will be increased to $ 104,000 for tax filing year 2018.
2. Personal and dependent exemptions have been removed but the standard deduction has increased
The standard deduction amount has increased substantially. Based on your filing status, you standard deduction will now be as follows:
Status Standard deduction for 2017 Standard deduction for 2018
1. Individual $6,350 $12,000
2.Married filing separate $6,350 $12,000
3. Married filing joint $12,700 $24,000
4. Head of household $9,350 $18,000
3. Child tax credit get a big boost
Child tax credit had been doubled. It has increased from $1,000 to $2,000 for 2019 out of which $1,400 is a refundable credit. Furthermore, it stats to phaseout at $200,000 for singles and $400,000 for married filing joint.
4. Cap on state and local taxes
State and local taxes which were eligible to be deducted in full can be deducted only upto $10,000. This $10,000 also includes any property taxes as well. This change will not affect expats who have no connection with any state and only file their federal tax returns.
5. Lower tax brackets
The tax brackets have been lowered for most taxpayers. Click here to learn more about the tax barckets
6. Foreign property taxes on vacation home outside the US
If you own a vacation home or part-time residence outside the United States, you will not be able to deduct your foreign real estate taxes.
6. Home mortgage deduction
Under the Tax Cuts and Jobs Act, you are allowed to deduct interest on mortgage debt up to $750,000. The law does make an exception for anyone who purchased a home before Dec. 15, 2017. In this case, the mortgage interest deduction is for debt up to $1 million.
