How the New Tax Law Affects Long-Term Capital Gains, Social Security

Ask us anything: We're getting questions from readers about the new tax law. While there's a lot still to be learned about the Tax Cuts and Jobs Act of 2017, people are asking about changes to the retirement savings credit and property taxes. No matter your question, we've got answers from some of the nation's top tax and financial planning experts. So, don't be shy. Send your questions about the new tax law to Robert.Powell@TheStreet.com. We'll try to answer and publish as many as we can about how it's going to affect your investments, retirement savings and taxes.

Editor's note: The following questions were answered by Julie Welch, a shareholder and director of taxation with Meara Welch Browne.

Question: I am trying to learn the impact of new tax law on long-term capital gains and qualified dividends. I saw two versions:

  • Uses the new 12% tax bracket instead of the old 15% tax bracket
  • Uses an income threshold $77,200 instead of tax bracket

What is your insight?

Answer: The new law retains the previous (current) law's maximum tax rates on net capital gains and qualified dividends (0%, 15%, and 20%). There may be some technical corrections needed in this area for the where exactly the breakpoints fall, but it appears that for 2018, the 0% tax rate will apply for those taxpayers generally in the lowest two tax brackets (e.g., up to approximately $77,000 of taxable income for those married filing jointly (MFJ) and approximately $38,500 for single taxpayers); meanwhile, the higher 20% rate appears to apply based on where the old tax rate brackets changed -- so those taxpayers finding themselves with taxable income of more than $425,800 for single individuals and $479,000 for married couples which falls in the middle of the new 35% brackets, rather than where the new top 37% brackets begin. Note that the 3.8% net investment income tax was also retained.

Question: Does the new tax law make any changes to the $32,000 threshold for Social Security to start being taxed?

Answer: The new tax law does not make any changes to the $32,000 threshold for Social Security to start being taxed. The previous rules still apply.

Question: I understand that I won't be able to deduct more than $10,000 in personal property taxes starting in 2018. But I am unclear if this also applies to our investment property. We own an investment property on top of our primary residence, and was wondering if the new tax law change of limiting $10,000 includes our investment property as well? Does the $10,000 limit on property tax claim affect both houses all together?

Answer: If the other property is a rental property that you report on Schedule E of your tax return, then the $10,000 limit does not appear to apply. However, if the other property is a "second" residence, then the $10,000 limit does apply.

If the property is neither of those but is investment property held for the production of income where such amounts were previously deducted as miscellaneous itemized deductions under Code Section 212, note that from 2018 to 2025, miscellaneous itemized deductions are not allowed.

Got questions about the new tax law or about investing for retirement? Email Robert.Powell@TheStreet.com.

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