Rent? Own? Single? Children? 4 Case Studies Show How New Tax Law Could Affect You
To see which way your tax bill might be headed in 2018, take a look at these four scenarios comparing the taxes certain types of people would pay in 2017 with their 2018 projected tax bills. Where do you fit in?


On Dec. 22, 2017, President Trump signed into law H.R. 1, or The Tax Cuts and Jobs Act (TCJA) — the first major tax reform since 1986. With 2017's tax season wrapping up, now is a good time for Americans to see how the TCJA will affect their tax situation going forward.
The Impact of Increasing the Standard Deduction – The Diminishing Value of Itemized Deductions
Craig and Mary Smith
- Married with no children
- Live in Columbia, Missouri
- Household income of $115,000
- Own a home with a $200,000 mortgage and pay about $7,500 per year in interest
- They make deductible annual contributions to a local charity of $2,000 a year
Header Cell - Column 0 | 2017 | 2018 |
---|---|---|
Wages/ Adjusted Gross Income | $115,000 | $115,000 |
Deduction | $16,479 (Itemized) | $24,000 (Standard) |
Personal Exemptions | $8,100 (2x) | N/A |
Taxable Income | $90,421 | $91,000 |
Row 4 - Cell 0 | Row 4 - Cell 1 | Row 4 - Cell 2 |
Federal Tax | $14,084 | $11,899 |
State Tax (MO) | $4,579 | $5,059 |
Marginal Tax Bracket (Federal/State) | 25%/6% | 22%/6% |
Bottom line: Due to the substantial increase of Standard Deductions, Craig and Mary will not be able to itemize deductions, which they previously used for the 2017 tax year, reducing the value of these deductions.
The Diminishing Value of Itemized Deductions
In 2017, the Smiths itemized their deductions because they exceeded the standard deduction amount available in 2017, which was $12,700. The Smiths’ itemized deductions consisted of the following:

Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
Itemized Deductions | Header Cell - Column 1 |
---|---|
State Income Taxes (Wages) | $4,579 |
Mortgage Interest | $7,500 |
Property Taxes | $2,400 |
Charitable Contributions | $2,000 |
Total | $16,479 |
Due to the increase of the standard deduction to $24,000 for those who are married and file jointly, the Smiths will use the standard deduction amount, since it is greater than the their total itemized deductions. As a result, the deductions they received for items such as mortgage interest and property taxes will not be as valuable for the Smiths. Finally, would the Smiths still make charitable contributions, considering there is no tax benefit for them?
Summary
This example reflects the concerns that real estate professionals and charities have about the new tax act. If fewer people itemize their deductions, which will likely be the case with the increase of the standard deduction, will individuals still purchase homes or give to charities, since there may no longer be a tax incentive to do so?
High-Income Married Couple – Impact of State and Local Income Tax Limitation
Richard and Karen Douglas
- Married with two dependent children
- Live in San Francisco, California
- Their adjusted gross income is $1 million
- They pay $40,000 annually in mortgage interest and $20,000 in property taxes
- They also make annual charitable contributions of $30,000 per year
Header Cell - Column 0 | 2017 | 2018 |
---|---|---|
Wages/ Adjusted Gross Income | $1,000,000 | $1,000,000 |
Deduction (Itemized) | $159,066 | $80,000 |
Personal Exemptions | $0 | N/A |
Taxable Income | $840,934 | $920,000 |
Row 4 - Cell 0 | Row 4 - Cell 1 | Row 4 - Cell 2 |
Federal Tax | $277,791 | $279,329 |
State Tax (CA) | $89,652 | $89,253 |
Marginal Tax Bracket (Federal/State) | 39.6%/11.3% | 37%/11.3% |
Effective Marginal Tax Rate on next $1000 (Fed/St) | 41.7%/12% | 37.9%/12% |
Bottom line: Even with the loss of over $79,066 in itemized deductions in 2018 due in part to the capping of state and local income tax deductions to $10,000 under the new law, the Douglases’ federal taxes increase only slightly, by about $1,538. This may be surprising given the amount of deductions lost but this is balanced out by the other favorable aspects of the law (including the lower tax rates)
Overview of 2017 Taxes – Non- capping of State and Local Income Taxes (SALT) & Phase Out of Personal Exemptions
For 2017, the Douglases’ itemized deductions would be $159,066 and are broken down as follows:
Itemized Deductions | Header Cell - Column 1 |
---|---|
State Income Taxes (Wages) | $89,652 |
Mortgage Interest | $40,000 |
Property Taxes | $20,000 |
Charitable Contributions | $30,000 |
Total | $179,652 |
Deduction Available (Pease Limitation) | $159,066 |
Under the previous law, the Douglases would be able to apply the full amount that they paid for state and local income taxes, including property taxes, to determine their itemized deduction amounts. In 2017, if taxpayers’ adjusted gross income exceeds certain levels ($261,500 for single filers and $313,800 for those who are married and filing jointly) the total amount of itemized deductions that can be used is reduced, also known as the Pease Limitation. Therefore, even though the Douglases’ total itemized deductions are $179,652, their total eligible deduction due to the Pease limitation is capped at $159,066.
The personal exemptions in place for 2017 also phase out at adjusted gross income levels similar to the itemized deduction phase-out, but unlike itemized deductions, personal deductions completely phase out when taxpayers exceed certain adjusted gross income thresholds ($436,300 for those married filing jointly). The Douglases’ adjusted gross income exceeds this amount, and therefore they will not be able to take any personal exemption deductions in 2017. In this case, the Douglases are not negatively impacted by the repeal of the personal exemption under the TCJA since they were not able to utilize personal exemption deductions in the previous year.
Overview of 2018 Taxes – Impact on the Capping of SALT Deductions
One of the major modifications under the TCJA for itemized deductions is the capping of state and local tax (SALT) deductions to $10,000. Since most of the Douglases’ deductions consist of SALT deductions, the amount of itemized deductions they can take for 2018 is significantly decreased, resulting in losing $79,066 in deductions for 2018 tax year.
Even though they lose a large portion of their itemized deductions, the Douglases’ federal tax still goes down slightly due to the lower marginal and effective tax rate for 2018 (37% and 37.9%) vs. 2017 (39.6% and 41.7%).
Summary
The capping of SALT will impact taxpayers in states with high income tax rates, such as California and New York, resulting in those taxpayers losing significant deductions that they were able to take previously. Even though their federal income taxes will generally not change significantly from previous years, they will not receive the same level of savings on their federal taxes than high-income taxpayers who live in states with lower income tax rates will.
Profit and prosper with the best of Kiplinger's advice on investing, taxes, retirement, personal finance and much more. Delivered daily. Enter your email in the box and click Sign Me Up.

Daniel Fan is a Partner in the Orange County office of Cerity Partners, LLC. He is an attorney with over 20 years of experience as a high-net-worth wealth planner and specializes in evaluating and optimizing clients’ financial situations to help them obtain their financial goals. Dan has extensive experience in areas such as income and estate tax, business succession, risk management/insurance and retirement planning.
-
Four Surprising Signs You’ll Never Retire (and How to Fix Them)
Gearing up to retire? If any of these four signs ring true, you may want to make some changes before you do.
-
Stocks Rise After Trump-Powell Fed Tour: Stock Market Today
Nvidia hit a new all-time high intraday, but another renowned semiconductor name and some less iconic stocks were bigger movers Friday.
-
How Divorced Retirees Can Maximize Their Social Security Benefits: A Case Study
Susan discovered several years after she filed for Social Security that she is eligible to receive benefits based on her ex-spouse's earnings record. This case study explains how her new benefits are calculated and what her steps are to claim some of the money she missed.
-
From Piggy Banks to Portfolios: A Financial Planner's Guide to Talking to Your Kids About Money at Every Age
From toddlers to young adults, all kids can benefit from open conversations with their parents about spending and saving. Here's what to talk about — and when.
-
I'm an Investment Pro: Here's How Alternatives Could Inject Stability and Growth Into Your Portfolio
Alternative investments can often avoid the impact of volatility, counterbalancing the ups and downs of stocks and bonds during times of market stress.
-
Five Ways Trump’s 2025 Tax Bill Could Boost Your Tax Refund (or Shrink It)
Tax Refunds The tax code is changing again, and if you’re filing for 2025, Trump’s ‘big beautiful’ bill could mean a bigger refund next year, a smaller one, or something in between. Here are five ways the new law could impact your bottom line.
-
A Financial Planner's Guide to Unlocking the Power of a 529 Plan
529 plans are still the gold standard for saving for college, especially for affluent families, though they are most effective when combined with other financial tools for a comprehensive strategy.
-
An Investment Strategist Takes a Practical Look at Alternative Investments
Alternatives can play an important role in a portfolio by offering different exposures and goals, but investors should carefully consider their complexity, costs, taxes and liquidity. Here's an alts primer.
-
Ready to Retire? Your Five-Year Business Exit Strategy
If you're a business owner looking to sell and retire, it can take years to complete the process. Use this five-year timeline to prepare and stay on track.
-
A Financial Planner's Prescription for the Headache of Multiple Retirement Accounts
Having a bunch of retirement accounts can cause unnecessary complications. Consolidation can make it easier to manage your savings and potentially improve investment outcomes.