The Tax Cuts and Jobs Act of 2017 has the most significant tax changes we have seen to the tax code in years. This legislation will impact almost every taxpayer, from individuals to corporations and all pass-through entities, as well as estates. Although we have more analysis work to do, here is a summary of the highlights.
- The number of income tax brackets remains at seven, however the rates have changed – 10%, 12%, 22%, 24%, 32%, 35%, 37%.
- Capital Gains Rates – the same capital gain rates will apply (0%, 15%, 20%), but the income tax brackets will be adjusted.
- The standard deduction will increase. For married individuals filing a joint return – $24,000, Head of Household – $18,000, all other taxpayers – $12,000.
- There will no longer be personal exemptions.
- Itemized deductions:
- Mortgage interest – can still be deducted, but new rules apply for new mortgages (capped at $750,000). Home equity debt deduction is eliminated.
- State and Local tax deductions – capped at $10,000 for state and local sales, income and property taxes.
- Charitable donation deduction will remain.
- Medical expense deduction remains in place with a lower floor of 7.5% for all taxpayers for 2018 and 2019.
- Miscellaneous itemized deductions (unreimbursed employee expenses, home office expenses, investment and tax preparation fees) have been eliminated.
- Alimony deduction will be repealed, but not until 2018.
- 529 Plans – Up to $10,000, per student, of 529 savings can now be used for public, private and religious elementary and secondary schools, as well as home school students.
- Child Tax Credit – will double to $2,000 per child, and will be refundable up to $1,400, subject to phase-out. The income threshold under which filers can claim the credit has increased to $200,000 for single and $400,000 for married filing joint. There is also a $500 non-refundable credit for other qualifying dependents.
- Alternative Minimum Tax – will remain for individuals, but the exemptions will be increased which means it will apply to fewer people.
- Many pass-through entities and sole proprietors will be taxed at their individual tax rates less a 20% deduction (to bring the rate lower) for business related income (subject to certain wage limits and exceptions). The deduction is disallowed for businesses offering professional services above a threshold amount; phase in begins at $157,500 for individuals and $315,000 for married taxpayers filing jointly.
- Corporate tax rate is lowered to 21% and alternative minimum tax is eliminated.
- Federal Estate Tax – will remain in place but the exemption will double to $11 million per person.
The individual tax cuts will expire December 31, 2025, but the corporate provisions will be permanent.
As there are over 1,000 pages to the new tax act, it will take a little time to digest all of the information contained in it.
If you have any specific questions, please do not hesitate to contact us.