Tax Reform – Key Provisions
The following are some of the key individual and business provisions of the Tax Cuts and Jobs Act, also know as Tax Reform. The new law was written with unprecedented speed resulting in many uncertainties in regard to its implementation.
Below are some key provisions as they are currently understood, however we would like to emphasize that there will be a great deal of guidance that will be issued by the IRS in the future in regard to how these rules are interpreted and applied.
We will update our website as the guidance for the application of these new rules unfolds.
If you would like to discuss how any of these or other provisions apply to you or your business, please do not hesitate to contact an S&G Team Member.
Individuals
| Topic | 2017 Tax Reform | Effective Date |
|---|---|---|
| Individual Tax Brackets | Still 7 brackets for individuals: 10%, 12%, 22%, 24%, 32%, 35% and 37% | Effective for years beginning after 12/31/2017 and before 1/1/2026. |
| Individual Alternative Minimum Tax (AMT) | Still applies but increases both - exemption amounts ($109,400 MFJ/$70,300 all others) - phase-out thresholds ($1 M MFJ/$500,000 all others) | Effective for years beginning after 12/31/2017 and before 1/1/2026. |
| Standard Deduction | $24,000 Married Filing Jointly $18,000 Head of Household Filers $12,000 Single Filers Additional deduction for elderly and blind unchanged. | Effective for years beginning after 12/31/2017 and before 1/1/2026. |
| Child Tax Credit | For qualifying children under 17 years at end of year: $2,000 per qualified child. $1,400 maximum refundable portion per qualified child. Phase out beings at $400,000 MFJ and $200,000 all others. | Effective for years beginning after 12/31/2017 and before 1/1/2026. |
| Medical Expenses | Deductible if in excess of 7.5% of Adjusted Gross Income and able to itemize deductions. | For tax years beginning after 12/31/16 and before 1/1/19. |
| Mortgage Interest | Interest is deductible on $750,000 home acquisition indebtedness for debt acquired after 12/15/17. For existing debt incurred before Dec. 15, 2017, the indebtedness limitation remains $1 million. Home Equity loan interest deduction is repealed. | Effective for years beginning after 12/31/2017 and before 1/1/2026. |
| State & Local Taxes | Allowed to claim a deduction up to $10,000 for aggregate of (1) state and local property taxes, and (2) state and local income/sales tax. | Effective for years beginning after 12/31/2017 and before 1/1/2026. |
| Overall Itemized Deduction Limit | Repealed | Effective for years beginning after 12/31/2017 and before 1/1/2026. |
| Affordable Care Act Individual Mandate Penalty | For those that do not have minimum essential health insurance coverage and are not otherwise exempted ,still in effect for 2017 and 2018, repealed beginning 2019. | Repealed beginning 2019. |
| Alimony | Payer will no longer be able to deduct alimony payments and payee will no longer include them in income. | For divorce decrees, separation agreements, and certain modifications entered into after 2018. |
| Job Expenses and Miscellaneous Itemized Deductions | All deductions previously subject to the 2% of adjusted gross income threshold will no longer be allowed. For example, this includes investment advisor fees and employee business expenses. | Effective for years beginning after 12/31/2017 and before 1/1/2026. |
| Federal Estate and Gift Tax | Doubled current exemption from estate and gift tax to $11,200,000. | Effective for years beginning after 12/31/2017 and before 1/1/2026. |
Businesses
| Topic | 2017 Tax Reform | Effective Date |
|---|---|---|
| Pass-Through Entities | Taxpayers who have domestic “qualified business income” (QBI) from a partnership, S corporation, or sole proprietorship are eligible for a 20% of QBI deduction. For those whose taxable income exceeds $315,000MFJ or $157,500 all other filing statuses, the deduction may be subject to several limitations. For businesses that are “Special Service” businesses the deduction begins to phase-out entirely at the above limits and is fully phased out at $415,000 MFJ and $207,500 all others. | Effective for years beginning after 12/31/2017 and before 1/1/2026. |
| Corporate Tax Rate | Flat 21% | Beginning after 12/31/2017, no expiration. |
| Corporate Alternative Minimum Tax | Repealed | Beginning after 12/31/2017, no expiration |
| Net Operating Loss Deduction (NOL) | Limited to 80% of taxable income. Two-year carryback repealed, but excess losses may be carried forward indefinitely. | Applies to losses arising in taxable years beginning after 12/31/2017. |
| Temporary 100% Expensing under Bonus Depreciation | Allows a deduction for both new and used property. The deduction is increased to 100% for property placed in service after September 27, 2017 and before January 1, 2023; but is phased down by 20% per calendar year for property placed in service in taxable years beginning after 2022. | Applies to property placed in service after 9/27/2017. |
| Section 179 Expensing | Increases the maximum amount that may be expensed under Section 179 to $ 1,000,000 and increases the phase-out threshold to $ 2,500,000. Expands the definition of qualified real property eligible for Section 179 expensing. | Applies to property placed in service in taxable years beginning after 12/31/17. |
| Domestic Production Activities Deduction (DPAD) | Repealed | For years beginning after 12/31/2017. |
| Depreciation Limit for “Luxury Autos” | Increases the depreciation limitations for passenger automobiles, to • $10,000 for the year placed in service • $16,000 for the second year, • $9,600 for the third year, and • $5,760 for the fourth and later years. | For autos placed in service after 12/31/17. |
| Like-Kind Exchanges of Real Property | Limits the nonrecognition of gain for like-kind exchanges to real property held for business or investment. No longer applies to the exchange of tangible personal property such as automobiles and equipment. | Applies to exchanges completed after 12/31/2017 with an exception to deferred exchanges that bridge 12/31/2017. |
| Entertainment Expenses | No deduction is allowed for entertainment, amusement, or recreation; membership dues for a club organized for business, pleasure, recreation, or other social purposes. | Applies to amounts paid or incurred after Dec. 31, 2017. |
| Excess Business Losses | Disallows an excess business loss of a taxpayer other than a C corporation. However, an excess business loss is treated as part of the taxpayer’s net operating loss. carryover to the following year. Generally an excess business loss is a loss incurred through operation of a taxpayer’s business of $500,000 for MFJ and $250,000 for all other taxpayers. | Effective for tax years beginning after 12/31/17. |