The largest tax overhaul in nearly 30 years, known as the Tax Cuts and Jobs Act, goes into effect this tax filing season. While the goal of the new tax legislation was to simplify the tax filing process and lower federal income tax for individuals, there are a number of key changes to keep in mind. Here’s what you need to know about what’s changed — and what it could mean for your finances.

What’s changed?

Lower individual tax rates. While there are still seven tax brackets, the majority of households will see reduced taxes due to lower tax rates and revised income thresholds.

Increased standard deduction. The standard deduction has nearly doubled, jumping to $12,000 for single filers and $24,000 for joint filers. If you typically itemize when you file your annual return, you might fare better financially by claiming the standard deduction instead. Add up all of your deductions for 2018 to see which option offers the most savings. Keep in mind that certain deductions — such as contributions to tax-deferred retirement accounts, health savings accounts and flexible spending accounts — are still available, whether you itemize or not. Consult with a tax advisor for any questions or to confirm eligible deductions.

Mortgage interest. Increased restrictions on mortgage interest deductions include a lower cap on new mortgages starting in 2018 (down to $750,000 from the former $1 million cap) and limiting deductions on home equity loans or lines of credit to home improvement projects.

The good news for homeowners is that a home equity line of credit or home equity loan can be a smart option if you plan to make renovations to your home, such as a new roof, windows, or additional space. The interest may be tax deductible, the payment terms may be more flexible than other types of borrowing and interest rates may be lower. In addition, leveraging your home equity can be a good short-term investment in your home to potentially increase its value in the long term, putting you in a stronger financial position when you’re ready to sell. Learn more about the benefits of using your home’s equity for home improvements.

Child tax and elder care credits. The new law increases the child tax credit to $2,000 per child and raises the income cap for joint filers. In addition, filers may now be able to claim a $500 credit for non-child dependents, such as elderly parents for whom you provide care.

Medical and dental expenses. The threshold for unreimbursed expenses drops from 10 percent of gross annual income to 7.5 percent for this filing season, but will go back to 10 percent for the 2019 tax filing year. Note that you must itemize to take advantage of the medical deduction.

State, local property, income and sales taxes. The new rules place a $10,000 limit on the total deduction that can be claimed from these taxes combined.

Elimination of dependent and personal exemptions. This change was made to make up for the increased standard deduction. Elimination of some itemized deductions, including tax preparation fees, moving expenses, casualty and theft loss, and unreimbursed work expenses.

What hasn’t changed?

Education. Two popular tax credits for college expenses, the American Opportunity Credit and the Lifetime Learning credit, remain unchanged. Interest on student loans may still be deductible as well.

Retirement. The rules for tax deductions for 401(k) and IRA retirement savings plans remain unchanged.

Keep in mind that these are just some of the key changes for the 2018 tax filing year. By starting early, gathering essential documents and staying informed, you’ll be better prepared for these changes — and the possible impact on your tax returns and finances. Visit the IRS website for the most up-to-date information or talk to your tax advisor if you have questions about the new filing changes for this year.

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