Our original version of this document was based on what was expected to be signed into law. Many provisions were altered or discarded. It’s very important to note that this will impact 2018 tax filings, not your 2017 returns due this spring. Here is a summary:
Tax Rates: A seven-rate structure, the same as exists now, but lowered the rates and configured the income levels for brackets. For instance, the top rate is cut from 39.6% to 38.5%. Notably, the tax cuts aren’t permanent, and the rates would revert to today’s figures after 2025.
- 10% (income up to $9,525 for individuals; up to $19,050 for married couples filing jointly)
- 12% (over $9,525 to $38,700; over $19,050 to $77,400 for couples)
- 22% (over $38,700 to $70,000; over $77,400 to $140,000 for couples)
- 24% (over $70,000 to $160,000; over $140,000 to $320,000 for couples)
- 32% (over $160,000 to $200,000; over $320,000 to $400,000 for couples)
- 35% (over $200,000 to $500,000; over $400,000 to $1 million for couples)
- 38.5% (over $500,000; over $1 million for couples)
Standard deduction and personal exemptions: The standard deduction is effectively being doubled to $12,000 for single filers and $24,000 for joint filers. Personal exemption is eliminated.
State and local taxes: A maximum deduction of $10,000 is allowed for the combination of all state and local taxes including property taxes.
Child tax credit: Doubles this credit to $2,000.
Itemized deduction phaseout: Repealed.
Mortgage Interest: The deduction intact although the maximum mortgage upon which interest will be deductible is $750K. For 2018-2025 the deduction for Home Equity interest is eliminated.
Medical deductions: Keeps the medical deduction and restores the 7.5%-of-AGI threshold temporarily for 2018. Estate tax exemption: For 2018, the estate tax exemption can shelter up to $5.6 million of assets from estate tax. This exclusion is raised almost two-fold to $11.2 million, $22.4 million for married couples.
Charitable deductions: The amount of income which can be offset is increased from 50% to 60% for cash (it remains 50% for property), and the deduction is eliminated if used for entitlement to purchase athletic tickets.
Education savings: Allows education funding under Section 529 plans to include K-12 elementary and secondary school tuition for public, private and religious schools as well as homeschooling.
Health insurance mandate: The insurance requirement under the Affordable Care Act (ACA), the law known as Obamacare, is abolished. Alimony: Now is neither income nor a deduction.
Other Deductions: A long list of other tax breaks are repealed, all miscellaneous itemized deductions subject to the 2% of AGI floor and job-related moving expenses except the military.
Corporate tax rates: The top tax rate for a corporation plummets from 35% to 21%. Unlike the individual tax rates, this reduction is permanent. Corporate AMT is repealed.
Business expenses: Allows a current write-off for business expenses under Section 179 for a period of five years followed by a phase-out. Entertainment is eliminated as a qualified business expense. Business interest expense is limited to 30% of adjust taxable income.
Business Losses: Excess business losses can only offset income by $250,000 ($500,000 couples). Amounts in excess become a net operating loss (NOL) carryforward. NOL can no longer be carried back (except for farms and insurance companies) but has unlimited carryforward against 80% of income.
Like-kind exchanges: Tax-free exchanges of like-kind property, commonly referred to as Section 1031 exchanges are now limited to real estate.
Pass-through entities: Pass-through entities such as partnerships, S corporations and limited liability companies (LLCs) would be able to take a 20% deduction on earnings. This provision is not available for “specified services businesses” if the taxpayer’s income is in excess of $157,500 ($315,000 married couples). Examples: Health, Law, Accounting, Actuarial Science, Performing Arts, Consulting Athletics, Financial Services, Brokerage Services. There are other complex rules around this provision