The Tax Cuts and Jobs Act - Update

On December 22, 2017, President Trump signed the Tax Cuts and Jobs Act. Although massive changes are set to take place, most will not impact 2017 returns. In fact, the bulk of the individual tax provisions are temporary and set to expire in 2025. These provisions will revert back to the 2017 rules unless they are extended by a future Congress. That is not the case on the corporate side, as most of those changes were made permanent. The bill fills more than 1000 pages so our overview below will be somewhat brief in comparison.

The Standard personal deduction increased substantially:

  • Couples: $24,000
  • Individuals: $12,000
  • Household Heads: $18,000.

You are offered a slight bump to these numbers if you are 65+. CPA’s now expect a reduction in the number of people who will itemize.

Interest deductions on home mortgages have been adjusted down to $750,000 from the previous deduction allowed on loans up to $1,000,000. This generally applies to new loans incurred after December 14, 2017 and will allow for older loans to continue to receive the $1,000,000 cap.

The deduction for state and local taxes will now be capped at $10,000. Property taxes for businesses and for-profit activity will not be capped so taxes paid on such things as rental realty can be taken in full on your schedule E.

Some popular write-offs that have been eliminated:

  • Job related moves (except for the military)
  • Alimony for divorce decrees (although good news for recipients, no tax on receiving the alimony)
  • Theft losses
  • Personal casualty losses (excluding those in presidentially declared disaster areas)
  • All miscellaneous write-offs subject to the 2%-of-AGI threshold, including employee business expenses, brokerage and IRA fees, hobby expenses, and tax preparation costs.

The Charitable contribution write-off is preserved as well as the write-off for personal gambling losses.

On the personal side, the new Act keeps the seven income tax brackets intact; however, it lowers the tax rates associated with each and changes the breakpoints. For a complete 2018 tax table, visit:

Tax rates on long term capital gains and qualified dividends do not change. However, with the bracket changes, Congress has decided to set income thresholds. The 3.8% surtax on net investment income remains.

The Individual Alternative Minimum Tax remains, with higher exemptions.

In 2019, the Affordable Care Act (ObamaCare) individual mandate requiring health insurance will disappear.

The Child tax Credit will double to $2,000 and there is a new $500 credit for dependents who are not qualifying children.

The lifetime estate and gift tax exemption increased substantially (to approximately $11 million). There is no change to the asset basis step up to heirs but income tax rates and brackets for trusts and estates have been revised.

Unearned income of children under the age of 18 is now taxed at the ordinary income and capital gains rates of trusts and estates, not the parents marginal tax rate, as before.

The tax benefits for retirement savings generally remain unchanged although there is some langue regarding the reversal of ROTH conversions and the ability to recover taxes paid on the original conversion from a tradition IRA to a ROTH IRA.

This ACT includes sweeping changes to the taxation of business of all sizes. We highly encourage all business owners to have conversations with their tax professional to gain more insight on their unique situation.

Along with the overhaul of the business and corporate tax structure, as you see, there are also many changes to the personal tax code. This was simply meant to be an extremely broad overview to make you aware of that fact. We continue to believe that the complicated tax code often warrants professional advice and would encourage you to seek that advice when preparing your next return.

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