Key Details of the Newly Passed Tax Cuts and Jobs Act
After Congress spent much of late 2017 wrangling over details of the Tax Cuts and Jobs Act, a final version of the bill was passed by Congress on December 20th and signed into law by the President on December 22, 2017. Most of the changes introduced by the bill went into effect on January 1, 2018, and will not affect 2017 taxes. Although the law is over 500 pages in length, and a detailed analysis is beyond the scope of this update, below are some of the key highlights for individuals and businesses:
Tax rates would be as follows for 2018 (reverts to current law in 2026):
|Rate||Single Taxpayers||Married Taxpayers|
|10%||$0 to $9,525||$0 to $19,050|
|12%||$9,526 to $38,700||$19,051 to $77,400|
|22%||$38,701 to $82,500||$77,401 to $165,000|
|24%||$82,501 to $157,500||$165,001 to $315,000|
|32%||$157,501 to $200,000||$315,001 to $400,000|
|35%||$200,001 to $500,000||$400,001 to $600,000|
|37%||Over $500,000||Over $600,000|
- Increases the standard deduction for single taxpayers to $12,000 and to $24,000 for married taxpayers (reverts to current law in 2026).
- Repeals personal exemptions and the “Pease” limitation on itemized deductions (reverts to current law in 2026).
- Repeals the state and local tax deduction except for up to $10,000 of property, income or sales tax (reverts to current law in 2026). The law also prohibits the pre-paying of income taxes (but not property taxes) in 2017 for 2018.
- Repeals miscellaneous itemized deductions subject to the 2% of adjusted gross income (AGI) floor (such as tax preparation fees, legal fees, union dues, etc., and reverts to current law in 2026).
- Reduces the mortgage interest deduction to interest on $750,000 of mortgage debt on a principal residence or second home (down from $1 million). Existing mortgages are not impacted by this change (reverts to current law in 2026). The law does not appear to change the treatment of margin or investment interest.
- Retains the provision to exclude up to $250,000 of gain, per person, from the sale of a principal residence lived in for two of the past five years.
- Retains the itemized deduction for medical expenses and lowers the floor for their deduction from 10% of AGI to 7.5% of AGI (reverts to current law in 2019).
- Retains the alternative minimum tax (AMT), but increases the exemption to $500,000 for single taxpayers and $1 million for married taxpayers (reverts to current law in 2026).
- Allows Section 529 plans to also be used for elementary and secondary education up to $10,000 per year.
- Retains the last-in first-out (LIFO), first-in first-out (FIFO) and specific identification methods for determining the cost basis for securities sold or otherwise disposed of (contrary to both of the earlier versions of the bill which required the first-in first-out (FIFO) method).
- Retains the current gift, estate and generation skipping tax (GST) structure, but increases the exclusion amount to $11.2 million per person (reverts to current law in 2026).
- Repeals the ability to deduct alimony payments made (and conversely, does not require the addition to income of alimony payments received) for any decrees made after 2018 (existing alimony payment/receipts are not impacted by this change).
- Provides for a 21% tax rate for C-corporations.
- Provides for a 20% deduction for certain pass-through business income (LLCs, partnerships, sole proprietorships and S corporations) of individuals, trusts, and estates. Specified service businesses are excluded (lawyers, accountants, etc.), except for income thresholds below $157,500 for single taxpayers and $315,000 for married taxpayers (reverts to current law in 2026).
- Repeals the corporate alternative minimum tax (AMT).
- Allows the full cost recovery/expensing of qualified depreciable assets acquired after September 27, 2017 and before January 1, 2023 with a phase-out from 2024 to 2027.
- Limits interest expense deduction to 30% of adjusted taxable income. However, from 2018 to 2021, adjusted taxable income is computed before deductions for depreciation, amortization or depletion.
- Repeals gain deferrals for like-kind exchanges (section 1031), other than for real property.
- Retains present law rules for private activity bonds but repeals the exemption for advance refunding bonds.
- Creates a territorial-style participation exemption system of taxation for international corporations (pay tax where it is earned), with a one-time, deemed repatriation for foreign earnings at a 15.5% rate for cash assets and an 8% rate for non-cash assets.
Especially on the corporate and pass-through side of the law, further analysis will be necessary to determine the ideal tax strategies and structures moving forward. We will continue to provide updates on anticipated impacts as we review the new legislation.