Tax reform has passed, and was signed by President Trump into law on December 22, 2017. What will it mean for you and your family? Here are the most significant changes, although we note that almost all changes to individual income tax rates and deductions are scheduled to sunset in 2025:
• The number of federal individual tax brackets will remain constant at 7, but the applicable tax rates will drop for most brackets.
• The standard deduction will increase from $6,500 to $12,000 for singles and from $13,000 $24,000 for married couples. The personal exemption of $4,150 will be repealed for all income levels starting January 1, 2018.
• Deductions for state and local income taxes, and for property taxes, will be capped at an aggregated $5,000 for individuals and $10,000 for married couples starting in 2018.
• Miscellaneous expenses which were previously deductible if they exceeded 2% of adjusted gross income will no longer be deductible.
• The mortgage cap for deducting interest on principal and secondary residences has been dropped from $1,000,000 to $750,000 for married couples. The Home Equity Line of Credit interest deduction has been eliminated.
• Charitable contributors will see their deductibility cap of 50% of adjusted gross income (AGI) increased to 60% of AGI. The deduction for the charitable contribution for university athletics seating rights has been repealed.
• The Tax Cuts and Jobs Act adds a new deduction for noncorporate taxpayers for qualified business income. The deduction is generally 20% of a taxpayer’s qualified business income (QBI) from a partnership, S corporation, or sole proprietorship, defined as the net amount of items of income, gain, deduction, and loss with respect to the trade or business. However, most pass-through professional services entities, such as those owned by medical professionals, engineers, attorneys and artists are excluded from this provision. • The alternative minimum tax (AMT) exemption will increase from $55,400 to $70,300 for singles, and from $86,200 to $109,200 for married couples. The phase-out of this exemption, which would have begun at $123,100 for singles and $164,100 for married couples absent tax reform, will now see the phase-out at $500,000 for singles and $1,000,000 for married couples
• For estates of decedents dying and gifts made after Dec. 31, 2017 and before Jan. 1, 2026, the Act doubles the base estate and gift tax exemption amount from $5 million to $10 million. The $10 million amount is indexed for inflation occurring after 2011 and is expected to be approximately $11.2 million in 2018 ($22.4 million per married couple).
• The child tax credit will be doubled from $1,000 to $2,000 per qualified child. Of this $2,000, $1,400 will be refundable. The phase-out of the credit will begin at $110,000, up from $75,000, for single filers, and at $400,000, up from $200,000, for married couples.
Some changes which will NOT sunset in 2025 are:
• The penalty for failing to purchase health insurance is reduced to $0 as of January 1, 2019.
• Qualified distributions from Section 529 Plans (educational savings accounts) have been expanded to include not only post-secondary education-related expenses, but also tuition for elementary and secondary public, private, or religious schooling.
Until next Wednesday –