Many people who filed their 2018 tax returns were surprised to receive a lower tax refund than they ever had before. Some people in Colorado may have even received a tax bill from the IRS. While many of the new tax law provisions benefit the wealthy and some benefit the general population, retirees and large families may get hit the hardest.
According to CNN, Colorado estimates that it will receive hundreds of millions of dollars in additional revenue due to the new tax laws until 2025. This is mostly as a result of the elimination of exemptions Colorado residents previously relied on, such as dependent and personal exemptions. Colorado has introduced some bills to offset the loss to families, but it will take some time to see if these laws pass and how they actually work in practice.
Forbes notes that families with several dependents are not the only demographic who may face hardships. People close to or already living in retirement may face new struggles. The reduction in deducibility of mortgage interest, for example, makes it difficult for upcoming retirees to purchase a second home. Many retirees purchase their retirement home ahead of time, so they can transition and then sell their old home when it is time to retire.
Retirees who pay off their homes and plan to remain there have often been able to use equity lines of credit to pay for expenses. This was a great backup plan to pay for emergencies, such as costly repairs, a new car or medical bills. Because the interest is no longer tax deductible, it may not be a cost-effective option for retirees anymore.
Finally, there are retirees who planned to live off the surplus from investments made over several years. In the past, investment management fees were deductible. This is no longer the case. As a result, investments now have to pay wages to not just retirees, but the people who manage their money. For people whose retirement plans relied on these tax deductions, the results may be catastrophic.