The tax reform bill is now completed with President Trump signing the Tax Cuts and Jobs Act of 2017 on December 22. Most of the new provisions will take effect on January 1, 2018. The following are highlights of some of the major tax provision changes contained in the bill.
- Individual tax brackets – Individual tax rates were reduced across the board. The new law replaces the current set of seven brackets with a different set of seven brackets as follows:
- New rates: 10%, 12%, 22%, 24%, 32%, 35%, 37%
- Current rates: 10%, 15%, 25%, 28%, 33%, 35%, 39.6%
- The standard deduction is increased to $ 12,000 for singles, $ 18,000 for heads of household and $ 24,000 for married filers. This will eliminate the need for many taxpayers to itemize deductions. Personal exemption deductions for taxpayer’s and their dependents will be eliminated.
- Many itemized deductions will be repealed including property taxes on vehicles, unreimbursed employee business expenses and the home office deduction.
- The deduction for state income tax and real estate property taxes is capped at $ 10,000.
- Mortgage interest deductions will only be allowed on loans up to $ 750,000 down from the current $1,000,000. The deduction for interest on home equity loans will be eliminated.
- Deductions for charitable contributions will be preserved.
- The child credit will increase to $ 2,000 per child and a new $ 500 credit for non-child dependents will be implemented. The AGI threshold at which the credit is phased out is increased to $ 400,000 for joint filers and $ 200,000 for single filers. This will increase greatly those eligible for the child credit.
- The alternative minimum tax (AMT) survives but the exemption amounts are modified so that fewer individuals will owe the tax.
- The estate tax exemption will double to $ 10,980,000. There will be no change in the basis step-up rules for estates of any size.
- For businesses, the corporate tax rate will be slashed to 21%, down from the current 35%. Pass-through entities like S-corporations and LLC’s will be provided a 20% deduction against their qualified business income. Special rules and limitations apply to this deduction.
- Bonus depreciation will be increased from 50% to 100% deduction for property placed in service after 9/27/17. Businesses will be allowed to write off 100% of fixed asset purchases in the year of purchase.
- For investors, the deductions for IRA and 401k contributions will remain unchanged and tax rates for capital gains and dividends will also remain the same.
These are just the highlights of a comprehensive overhaul of the tax code. Please contact me for questions related to the new law.
David K. Raye, CPA, P.C. 704-887-5298 www.davidrayecpa.com
*The information in this blog post is general in nature and not intended as specific advice. Please consult a tax advisor to see how this information applies to your specific situation.