The Massachusetts state legislature recently passed a significant tax reform bill that will impact a large number of people who pay taxes in Massachusetts.

Here are some of the highlights that may have an impact on your 2023 tax return:

Child and Dependent Credit

The credit for those with children under age 12, disabled dependents, or other dependents over age 65 will increase from $180 per dependent to $330 in 2023. For 2024 and future years, the credit will increase to $440. The cap of 2 dependents has also been eliminated.

Short-Term Capital Gains

The tax rate on short-term capital gains – meaning realized gains from selling investments that were held for one year or less –  has been reduced from 12% to 8.5%.

Estate Tax

The new rules provide for an estate tax credit of up to $99,600, eliminating any taxes on estates valued under $2 million. This is a big increase over the previous threshold of $1 million, and the legislation also removes the cliff effect that had existed in the past. This means that only the value over $2 million will be taxed, whereas previously an estate valued over $1 million meant the entire estate was subject to tax.

Rental Deduction

50% of rent paid is deductible on your Massachusetts tax return. Previously this deduction was capped at $3,000, and as part of the new legislation, the maximum deduction has been increased to $4,000. If you pay more than $6,000 in rent for the year this means you will see a reduction in your tax bill as a result of this change.

Septic System Tax Credit

This credit, which benefits those who have incurred costs associated with repairing or replacing a failed septic system has increased from a maximum of $6,000 to a maximum of $18,000. 60% of costs up to $30,000 are eligible for the credit, and you can claim up to $4,000 in any single year (up from $1,500 per year previously).

Commuter Benefits

The Massachusetts commuter deduction now includes costs such as public transit fares, regional transit fares, bicycle expenses, and ferry passes.

Senior Circuit Breaker Tax Credit

This credit, which benefits those over 65 who have rental or real estate tax costs and meet certain income requirements, has been increased from $1,200 to $2,400.

If you have questions about how these changes will impact your personal tax situation, reach out to us!

Joe Calvetti is a CPA and the founder of Still River Financial Planning, a comprehensive, fee-only financial planning firm that specializes in working with young families and professionals. Click here to learn more about how we work with clients.

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Disclaimer: The information provided above is for educational purposes only and should not be considered financial, legal, or tax advice. You should consult with a professional for advice specific to your situation.