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Inflation-Related Tax Law Changes for 2017

Updated for Tax Year 2018


OVERVIEW

Many taxpayers will benefit from inflation-based adjustments to various deductions, credits and thresholds for the 2018 tax year. A number of changes went into effect. The most common effect is essentially a tax cut for the taxpayers who are affected.


For the 2018 tax year, many taxpayers will benefit from both tax reform measures pass in late 2017 and inflation-based adjustments to various deductions, credits and thresholds. By law, the Internal Revenue Service must make these adjustments based on the inflation rate. While not every amount is changed every year, there are always some adjustments. A number of changes went into effect in 2018. The most common net effect is essentially a tax cut for the taxpayers who are affected.

Deductions and exemptions

For 2018, exemption deductions have been eliminated due to the tax law changes passed in late 2017. However, the standard deduction for tax payers was significantly increased.

  • For 2018 it is $12,000 for single and married filing separate filers, $24,000 for married filing joint, and $18,000 for head of household filers.
  • Taxpayers using the foreign earned income exclusion in 2018 will see a rise to $104,100, up $2,000 from 2017.

Credits and phase-outs

The Earned Income Tax Credit (EITC) is an important tax benefit for low- and middle-income taxpayers, particularly those with dependent children.

  • For 2018, the maximum credit rises from $6,318 to $6,431.
  • For purposes of qualifying for the EITC, the maximum income rises to $54,884, up from the 2017 maximum of $53,930.

The phase-out of the Lifetime Learning Tax Credit begins at a modified adjusted gross income of $114,000 for joint filers, a rise from 2017's $112,000 limit. For singles and heads of household, the limit remains $57,000.

Phase-out limits for the Student Loan Interest tax deduction are unchanged for 2018 with it phasing out from $65,000 to $80,000 for individual taxpayers and from $135,000 to $165,000 for joint filers.

Tax bracket thresholds

All tax brackets benefit from a widening in 2018, thanks to the tax reform passed in late 2017. The 37% tax bracket is the highest bracket in addition to the 10%, 12%, 22%, 24%, 32% and 35% brackets.

To find your tax bracket, use the TurboTax Tax Bracket Calculator.

Estate and gift taxes

Wealthy taxpayers see a rise in the amount that can be left to heirs without paying estate tax for 2018, up to $10.180 million from $5.49 million in 2017. However, the annual gift tax exclusion increases to $15,000.

A 2018 inflation adjustment comes into play for estate executors choosing the special use valuation for qualified real property.

  • Essentially, the special use valuation allows an executor to assign a property a lower value -- and consequently a lower estate tax liability -- if its "special use" lowers its value below what would otherwise be fair market value.
  • For 2018, executors can lower the value of property in this manner by up to $1.14 million, up $20,000 from 2017.

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