President Signs Tax Reform Bill ~ Highlights

Summary

  • Income will generally be taxed at lower levels. Set to expire after 2025.
  • No change in tax treatment of qualified dividends or capital gains.
  • Treatment of personal residence sales remains the same.
  • Higher standard deductions but no personal exemptions.
  • Limits on certain Itemized Deductions. No overall reduction of Itemized Deductions.
  • Added provision that disallows prepayment in 2017 of state and local income taxes imposed for a year after 2017 to avoid the new dollar limitation.
  • Increase in child tax credits and the amount is refundable.
  • Federal Estate Tax: Doubles the Basic Estate Exclusion Amount for decedents dying after 12/31/17 and before 1/1/28/2026 to$10 million.
  • Exclusion now allows married couples to exempt up to $22 million for 2018.
  • Step-up basis adjustment is retained (date of death values) for inherited assets for purposes of any subsequent sale.

PERSONAL

There will still be 7 tax brackets, but these will be generally taxed at lower rates.

The current standard deduction will roughly double for each taxpayer.

Single MFJ/QW MFS HOH
2017 $ 6,350 $ 12,700 $ 6,350 $ 9,350
2018 $ 12,000 $ 24,000 $ 12,000 $ 18,000

Personal exemptions will no longer exist.

Child and Family Credits are enhanced and more taxpayers will benefit.

2017 2018
Credit for Children $ 1,000 $ 2,000
Credit for other family members $ 0 $ 500
Phase-out begins $ 110,000 $ 400,000
Refundable amount (credit for children only) $ 1,000 $ 1,400

Mortgage interest, will be allowed on $750,000 ($375,000 in the case of married taxpayers filing separately) for new debt, for both 1st and 2nd homes.

Original debt at 12/31/17 will be grandfathered in at the $1 million limit. There will be no deduction for interest on a line of credit.

Sales and Local/Real Estate Taxes deduction will be limited to $10,000.

There will no longer be any deductions subjected to the 2% floor limit, for example investment expenses, unions dues etc.

Personal Casualty losses are repealed, except for declared disasters.

Medical expenses for 2017 and 2018 have a threshold of 7.5% of AGI for all taxpayers.

Charitable contributions limit for cash donations is increased from 50% to 60%.

Alimony paid for divorce settlements after 12/31/18 (including modified agreements) will not be deductible by the payor, nor taxable for the payee.

The Pease limitation (reducing itemized deductions) has been repealed.

Section 529 Plans will allow distributions up to $10,000 for qualified education expenses for elementary & high schools. Certain homeschool expenses will be allowed.

Student loan interest deduction retained.

The rule to recharacterize Roth IRA contributions as traditional IRA contributions to unwind Roth Conversion is repealed.

Affordable Care Act penalty assessment repealed for years AFTER 2018.

BUSINESS

BUSINESS
A flat rate of 21% on all corporation profits. Current tax rates are;

Taxable income Tax Rate
$ 0 to $ 50,000 15%
$ 50,001 to $ 75,000 25%
$ 75,001 to $ 10,000,000 34%
Over $ 10,000,000 35%

No AMT for corporate entities.

Pass-through entities may be able to take a 20% deduction on Qualified Business Income.

This deduction is limited to the lower of 20% of taxable income or 20% of QBI. This is phased-out between taxable income of $ 315,000 and $ 415,000.

For income above the $415,000 level there is a further limitation.

There are special rules for Service businesses, effectively giving a 20% deduction only if taxable income is under $315,000 and no deduction if taxable income is over $415,000.

Bonus Depreciation is extended to both new and used property. Property acquired between 9/27/2017 and 2022 will have a 100% write off. This is reduced by 20% in subsequent years. Depreciation
caps on vehicles increased to $10,000 for 1st year (from $3,160), $16,000 for 2nd year (up from $5,160), $9,600 for 3rd year, and $5,760 each subsequent year.

S179 has been expanded. Currently $ 500,000 of property can be expenses. This is phased out if a business places over $2,000,000 of property in a year. The new act increases the expensing limit to $1,000,000 and the phase out to $2,500,000.

The definition of qualified tangible personal property and qualified real property under S179 has been expanded.

Business interest deduction has been limited in businesses with average gross receipts over $25,000,000 to 30% of a business’s adjusted taxable income. Any interest disallowed would be carried forward indefinitely.

Net Operating Losses may currently be carried forward 20 years and back 2 Years. NOL will be limited to 80% of taxable income, and carrybacks would be eliminated. NOLs would be able to be carried forward indefinitely.

Excess business losses would be disallowed for taxpayers with income exceeding $500,000 MFJ.

Posted on: February 6, 2018, by :