HIGHLIGHTS OF THE SWEEPING AND JUST SIGNED TAX REFORM LAW
BY WALTER DASKOWSKI
On December 22, President Trump signed into law H.R. 1 (officially titled “An Act to Provide for Reconciliation Pursuant to Titles II and V of the Concurrent Resolution on the Budget for Fiscal Year 2018”). The new legislation overhauls the Internal Revenue Code by lowering tax rates and eliminating numerous tax provisions.
Highlights of the new tax reform:
Individual tax rates will go from 10%, 15%, 25%, 28%, 33%, 35% and 39.6% to 10%, 12%, 22%, 24%, 32%, 35%, and 37% starting January 1. In addition to lower rates, most income bracket thresholds have been increased.
The Child Tax Credit will go from $1,000 (refundable up to $1,000) in 2017 up to $2,000 (refundable up to $1,400) in 2018. In addition, more people will be afforded the Child Tax Credits than before due to higher income limitations.
The Standard Deduction will almost double for single, married filing separately, married filing jointly, and head of household tax filers. With the new higher standard deductions, the Joint Committee on Taxation estimates that 94% of households will claim the standard deduction in 2018, up from about 70% now.
The exemption amount from the Alternative Minimum Tax (AMT) has increased to reduce the complexity and tax burden for millions of Americans. Taxpayers in AMT will see a large tax savings with this change.
Effective for 2017 and 2018, the threshold for deducting medical expenses is 7.5% of adjusted gross income for all taxpayers. Prior to 2017, the threshold was 10%.In 2018, long term capital gains and qualified dividends will be taxed at a maximum rate of 20%. Short term capital gains are still taxed as ordinary income. The new long term capital gains rates are 0%, 15%, and 20% depending on income.
The deduction for personal exemptions is suspended for tax years 2018 through 2025.
Effective 2018, the mortgage interest deduction limit is reduced to $750,000. e $1 million debt limit still applies if a taxpayer has entered into a binding written contract before December 15, 2017 to close on the purchase of a principal residence before January 1, 2018, and actually purchases the residence before April 1, 2018.
The new law limits, as an itemized deduction, up to $10,000 for state and local income and property taxes, otherwise known as SALT deductions.
The penalty tax for not having health insurance is repealed as of January 1, 2019. However, the 3.8% net investment income tax still is in effect, as is the additional Medicare tax.
Alimony is no longer deductible by the payer and will not be included in the income by the recipient for any divorce finalized after December 31, 2018.
Deductions for casualty and theft losses (except those attributable to a federally declared disaster), unreimbursed employee expenses, other miscellaneous deductions, and moving expenses will no longer be available in 2018.
The corporate tax rate went from a minimum tax rate of 35% to a 21% at rate. Effective 2018, there are new complex provisions regarding pass through entity business income. Generally, an individual taxpayer may deduct 20% of qualified business income, but there are several industry and income limitations.
As we all know, taxes can be complicated, and particularly given these recent changes, it is a good idea to seek the advice of your CPA.