Many taxpayers will benefit from inflation-based adjustments to various deductions, exemptions, credits and thresholds for the 2017 tax year. A number of changes went into effect. The net effect is essentially a tax cut for the taxpayers who are affected.
For the 2017 tax year, many taxpayers will benefit from inflation-based adjustments to various deductions, exemptions, 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 2017. The net effect is essentially a tax cut for the taxpayers who are affected.
Deductions and exemptions
Most taxpayers enjoy an exemption for themselves and any dependents. For 2017, this exemption remained at $4,050. However, the standard deduction for tax payers increased.
- For 2016 it is $6,350 for single and married filing separate filers, $12,700 for married filing joint, and $9,300 for head of household filers.
- Taxpayers using the foreign earned income exclusion in 2017 will see a rise to $102,100, up $800 from 2016.
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 2017, the maximum credit rises from $6,269 to $6,318.
- For purposes of qualifying for the EITC, the maximum income rises to $53,930, up from the 2016 maximum of $53,505.
The phase-out of the Lifetime Learning Tax Credit begins at a modified adjusted gross income of $112,000 for joint filers, a rise from 2016's $112,000 limit.
- For singles and heads of household, the limit remains $55,000.
Phase-out limits for the Student Loan Interest tax deduction are unchanged for 2017 with it phasing out from $65,000 to $80,000 for individual taxpayers and from $130,000 to $160,000 for joint filers.
Tax bracket thresholds
All tax brackets except the highest benefit from a widening in 2017, thanks to the IRS inflation adjustments. The 39.6% tax bracket is the highest bracket in addition to the 10%, 15%, 25%, 28%, 33% 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 2017, up to $5.49 million from $5.45 million in 2016. However, the annual gift tax exclusion remains at $14,000.
A 2017 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 2017, executors can lower the value of property in this manner by up to $1.12 million, up $10,000 from 2016.
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