Income tax updates for 2024, with whiplash from 2018-era tax changes

The Internal Revenue Service (IRS) has announced new tax rates and standard deductions for 2024, adjusted for inflation by various CPI gauges.

The new tax rates for income earned in 2024 are:

• 35% for married couples filing jointly with incomes over $487,450 ($243,725 for single filers);
• 32% for joint filers with incomes over $383,900 ($191,950 for single filers);
• 24% for joint filers with incomes over $201,050 ($100,525 for single filers);
• 22% for joint filers with incomes over $94,300 ($47,150 for single filers);
• 12% for joint filers with incomes over $23,200 ($11,600 for single filers); and
• 10% for joint filers with incomes of $23,200 or less ($11,600 for single filers), as published by the IRS.

The 2024 standard deduction is:

• $29,200 for joint filers, up from $27,700 in 2023;
• $21,900 for heads of households, up from $20,800 in 2023; and
• $14,600 for individual filers, up from $13,850 in 2023.

Tax brackets for Capital Gains tax have also increased to:

• 0% for joint filers with incomes up to $94,050 ($47,025 for single filers);
• 15% for joint filers with incomes over $94,050 ($47,025 for single filers); and
• 20% for joint filers with incomes over $583,750 ($518,900 for single filers).

The alternative minimum tax (AMT) exemption amount has increased to $133,300 for joint filers ($85,700 for single filers). The phaseout threshold beyond which taxpayers are no longer eligible for the AMT exemption has increased to $1,218,700 for joint filers ($609,350 for single filers).

The AMT is a supplemental income tax targeting high-income earners who strategically have a high ratio of standard income tax (SIT) deductions.

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Will high inflation help you pay less tax for 2023?

 Some relief — but the bracket creep will get you

2024’s adjusted tax rates offer some measure of relief to taxpayers who have seen their purchasing power battered away first by 2022’s high consumer inflation, then by 2022’s jump in interest rates.

Critically , the 2018 tax overhaul tied tax bracket adjustments to the chained consumer price index (CPI). This CPI index rises more slowly than the traditional CPI measure for the price of consumer goods you actually buy.

In turn, tax brackets rise more slowly than the consumer inflation everyone experiences as retail buyers. This means, whether or not your household income rises, you are shifted into higher tax brackets more quickly than under the old measure which elevated these brackets more in line with rises in inflation and personal incomes to keep the standard of living from declining.

By design, you as a taxpayer annually suffer from rate adjustment mathematics, more generally termed bracket creep. The rate of tax automatically moves up into a higher tax bracket despite you receiving no real increase in the amount of your income (after deducting the annual consumer-goods price inflation).

Meanwhile, the government’s take increases at a faster clip. True, your income may have increased in total dollar amount from the previous year, but not enough to actually match or increase your purchasing power from the prior year.

This occurs when consumer inflation exceeds the percentage increase in your after-tax income. Here, the math is due to the CPI index used not equaling or exceeding consumer price inflation experience by the taxpayer. So, you end up a bit poorer than in the prior year.

As real estate licensees come off the high of 2020-2021’s inflated earnings, the hit to sales volume and pricing in 2022-2023 has presented major adjustments, amounting to significant losses in income across the industry.

As a result, bracket creep may not actually be an issue for most agents in 2024, as they adjust to reduced income. Look ahead to around 2026 for bracket creep to become a real issue once again. Then, the housing market will enter its next sustainable expansion, as will the proportion of income paid for taxes compared to prior years.

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