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The Tax Cuts and Jobs Act and Retirees

By Mark A. Krohn, Tax Attorney & CPA, J&G LLP

Most retirees will not be affected by the provisions of the new 2017 Tax Cuts and Jobs Act (the”Act”). Those that are affected, however, may benefit by discussing their options with an experienced tax advisor.

I will discuss four or five important provisions of the Act that may effect retirees.

  • The Act provides a cap on interest paid on mortgages limited to $750,000.00 of debt incurred on or after December 15, 2017. Interest on mortgages up to $1 million in debt incurred before that date is still deductible. Interest paid on Equity Lines of Credit is no longer deductible.
  • The Act limits deductions to $10,000.00 for State and Local Real Property and Income Taxes paid where no limitations existed before passage of the Act.
  • On a positive note, the Act lowers the threshold limits on medical expense deductions from 10% of Adjusted Gross Income (“AGI”) to 7.5% of AGI and eliminates the phase-out of itemized deductions for those who exceed that income limits ($311,300.00 for married couples and $259,400.00 for single filers). The standard deduction has been increased to $24,000. from $12,700. for married couples and to $12,000. from $6,350. for single filers.
  • After December 31, 2018 alimony is no longer deductible to the payer and is not taxable to the recipient. Because of this change, unless additional children are contemplated (rare), retirees may choose to simply separate without divorce and choose to informally work out their financial arrangements privately. If child support is to be part of the agreement (rare among retirees) take note that these rules have  not changed, and remains non-deductible to the payer and non-taxable to the recipient.
  • Further, the Act doubles the estate and gift tax exemption for decedents dying or gifts made after December 31, 2017 and before January 1, 2026 by increasing the basic exclusion from $5 million to $10.98 million.


Example 1. Jimmy Redik and Kathy Redik sold their newspaper company, “El Diario Reportero”, whereupon they decided to retire and live off their savings. The Rediks have accumulated significant amounts of savings and receive approximately $1,000,000. in investment income each year along with $60,000. in Social Security benefits. Their wealth allows them to make charitable donations of around $100,000. a year. They pay $100,000. in state and local taxes and $25,000.00 in medical expenses. The Rediks currently pay approximately $153,000. in federal income taxes each year. Under the Act, their taxes will increase to $163,925.. The increase comes from a loss of all but $10,000. of their state and local tax deductions. Their other deductions relating to charitable donations and mortgage interest will increase as a result of the Act’s elimination of the phase-out of itemized deductions under current law.

Example 2. Tommy Westeria is a retired electrical pin-ball game repairman earning retirement income of $53,600. per year, consisting of $20,000. in Social Security benefits, a $27,000. pension, and $6,600. in 401(k) income. Tommy has $7600. in medical expenses, and he currently pays $4,000. in federal taxes. Tommy’s  federal tax bill will go down by $575.00 to $3,425., or 14.4 percent, under the Act. The favorable reduction in tax results primarily from the lower marginal tax rate on his $27,000. pension income.

Example 3.  Phalaenopsis is a retired cosmetic and jewelry sales person. Phal receives Social Security of $21,000. per year, as well as $11,100. from her 401(k) retirement fund. Phal currently doesn’t pay any tax now, and furthermore he will not pay any tax under the Act because under the new law there is no taxation of Social Security or investment income.

Example 4. Penny Pace receives Social Security of $15,750. each year, and $11,125. in retirement plan proceeds. Penny does not pay tax under the current law and will not pay anything more under the Act since there is no change to how Social Security and retirement income is taxed.

Example 5. Tarry Shooster is a retired seventy-two year-old real-estate entrepreneur with accumulated assets in New York and Florida. Tarry is concerned that his estate may be liable for estate taxes and wants to know whether he should begin making small annual gifts to his children in the amount of $14,000. per year. Tarry should ask his tax estate planning lawyer about incorporating language in his trust that will take into account the new estate tax exemption under the Act of up to $10,000,000. dollars for the tax years 2018 through 2025.


Readers of this article may be concerned about how the Tax Cuts and Jobs Act of 2017 will effect them. I am hopeful that those reading this segment will relax those fears and understand that the new Act is generally good news for retirees. Retirees will be less affected than other Americans under the Act since there has been no change to how Investment Income and Social Security is taxes. Earnings and pension incomes will be subject to lower tax brackets and rates which will mean less tax for most retirees.

Further, many retirees will benefit from the increase in the standard deduction from $12,700. to $24,000. Wealthy retirees may have less to worry as a result of the increase in Estate Tax exemption from $5 million to $10.98 million.


Mark A. Krohn, LL.M Taxation, CPA and a partner at J&G, is in charge of the Business Law Team and is also a member of the Trust & Estates Team. He can be reached by phone at our Walden, NY office at 866-303-9595 toll free or 845-764-9656 and by email.

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