Tax Cuts and Jobs Act

The Tax Cuts and Jobs Act passed both houses of Congress on December 20, 2017. This is the most sweeping change to the income tax laws since 1986. The tax bill affects taxpayers from all levels from low income to high income earners. The provisions of the new tax law will not apply to income tax year 2017. Strangely, all the changes affecting individuals expire after 2025.

The main area of change for individuals is to greatly reduce the use of Schedule A Itemized Deductions on individual income tax returns. Currently about 30% of taxpayers use Schedule A but that will probably be reduced to under 10% of all taxpayers.

 

 

Tax Cuts and Jobs Act

   

Old

New

Business

Corporate tax rates are 15%, 25%, 34%, 39%, 34%, 35%, 38%, 35% Corporate tax rate is a maximum rate of 21%
Alternative minimum tax Eliminated
Depreciation rules Allows businesses to expense the cost of new equipment used in the business
Interest expense Limits interest expense deduction to 30% of income
Research & Development credit No change until 2022 when they will have to be amortized over 5 years
Companies owe US taxes on all income earned in any country Companies will not be taxed on foreign earnings. However, they will be required to pay a tax on previous earnings held offshore of 15.5% on cash assets and 8% on non-cash assets
  New deduction of 20% of “qualified business income” from partnership, S-corporation or sole proprietorship and REITs

 

 

Individuals

Current tax rates:

10%, 15%, 25%, 28%, 33%, 35%, 39.6%

New Tax Rates:

10%, 12%, 22%, 24%, 32%, 35%, 37%

Current personal exemption is $4,050 Eliminated
Standard Deduction is $6,300 for Single and $12,600 for Married Filing Jointly Standard Deduction is $12,000 for Single and $24,000 for Married Filing Jointly
Tuition waivers for grad students are tax free No change
Child Tax Credit Child Tax Credit raised to $2,000 of which $1,400 is refundable
Child Tax Credit for Single up to $75,000 and Married Filing Jointly up to $110,000 Child Tax Credit for Single up to $200,000 and Married Filing Jointly up to $400,000
Section 529 Section 529 distributions limited to $10,000 per student per year. The funds can be used for K-12 as well as college
  New nonrefundable credit of $500 for qualifying dependents who are not qualifying children

 

Deduction for student loan interest up to $2,500 No change
Moving expenses Eliminated except for active duty military
Educators deduction is $250 No change
Electric vehicle credit is $7,500 No change but limited to first 200,000 cars sold by each manufacturer
Gain on sale of principal residence is $250,000 for Single and $500,000 for Married Filing Jointly No change
Long-term capital gains tax rates are 0%, 15% and 20% No change
Health Insurance Mandate that everyone must have pay for a minimum level of health care Eliminated after 2018
Estate tax rate is 40% No change
Estate tax exemption is $5.5 million per person Doubles the estate tax exemption from $5.5 million per person to $11 million per person
Alimony is deductible by payor and taxable to payee For individuals who get divorced after 2018, alimony is not deductible by payor or included in income of payee
Alternative Minimum Tax starts at $54,300 for Single and $84,500 for Married Filing Jointly Alternative Minimum Tax starts at $70,300 for Single and $109,400 for Married Filing Jointly

Schedule A

Medical deductions above 10% of AGI Medical deductions above 7.5% of AGI
State income tax deduction These deductions are limited to $10,000 total for either property taxes and income taxes or property taxes and sales taxes per tax return (same for Single or Married Filing Jointly)
State and local sales tax deduction
Property tax deduction
Mortgage interest deduction limited to interest on first $1,000,000 Mortgage interest deduction limited to interest on first $750,000 on new purchases after December 16, 2017. Includes first and second residences
Interest on HELOC allowed up to $100,000 HELOC interest no longer deductible
Charitable deductions limited to 50% of income Charitable deductions limited to 60% of income.
Casualty and theft losses Limited to presidentialy declared disaster
Job expenses and miscellaneous deductions Eliminates job expenses and miscellaneous deductions
Tax preparation fee deductible Eliminated

 

 

2018 Income Tax Brackets

Tax Rate Single Married Filing Jointly
10% tax bracket $0-$9,525 $0-$19,050
12% tax bracket $9,526-$38,700 $19,051-$77,400
22% tax bracket $38,701-$82,500 $77,401-$165,000
24% tax bracket $82,501-$157,500 $165,001-$315,000
32% tax bracket $157,501-$200,000 $315,001-$400,000
35% tax bracket $200,001-$500,000 $400,001-$600,000
37% tax bracket $500,000- $600,001-
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