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TAX REFORM UPDATE

Posted on: December 21st, 2017 by Mary Serbekian

After being forced to vote a second time on the sweeping tax reform package due to last minute revisions, the House gave its final stamp of approval to the bill on Wednesday. Congress will now send the $1.5 trillion package to President Trump’s desk.  If all goes as planned, Trump is expected to sign the bill before Christmas.

Here’s a look at what’s in the conference bill:

  • Seven (7) brackets will be kept but with slightly different rates: 10%, 12%, 22%, 24%, 32%, 35% and 37%.
  • The same capital gains rates will apply but the brackets will be adjusted. Additionally, those controversial FIFO (first in/first out) sales rules will not apply.
  • The standard deduction amounts will increase to $12,000 for individuals, $18,000 for HOH, and $24,000 for married couples filing jointly.  There is no change to additional standard deductions.
  • Personal exemptions will disappear.
  • New mortgages would be capped at $750,000 for purposes of the home mortgage interest deduction. For mortgages taken out before December 15, 2017, the limit will be $1,000,000. Beginning in 2026, the cap will also be $1,000,000, no matter when the debt was incurred (confusing, I know). Additionally, the deduction for interest on home equity debt (meaning re-fis not related to improving your home) will be eliminated beginning in 2018 – but it will return in 2026.
  • State and local tax deductions will remain in place but will be capped at $10,000 for state and local sales, income and property taxes. And yes, they already know what you’re planning, so amounts paid in 2017 for state or local income tax which is imposed for the 2018 tax year will be treated as paid in 2018. In other words, you can’t pre-pay your 2018 state and local income taxes in 2017 to avoid the cap.
  • The charitable donation deduction will remain in place with some adjustments upwards on limits for cash gifts. However, the conference bill does not include an adjustment to the charitable mileage rate.
  • The medical expense deduction will remain in place with a lower floor of 7.5% for tax years 2017 and 2018. Yes, that means it is retroactive to this year.
  • Miscellaneous deductions which exceed 2% of your AGI will be eliminated. This includes deductions for unreimbursed employee expenses, home office expenses, and tax preparation expenses.
  • The deductions for student loan interest and out-of-pocket teacher expenses will be retained with the current caps. The alimony deduction will be repealed – but not until 2019: The change applies to any divorce or separation instrument executed or modified after December 31, 2018 (the modification must expressly states that the new rule applies).
  • There are no changes to the American Opportunity Credit (AOC) and Lifetime Learning Credit (LLC).
  • The exemption for tuition waivers will remain in place.
  • The tax break for moving reimbursements will be eliminated (except as it applies to the military) but the breaks for dependent care assistance and adoption assistance will remain in place.
  • Up to $10,000 of 529 savings plans can be used per student for public, private and religious elementary and secondary schools, as well as home school students.
  • The child tax credit will double to $2,000 per child and will be refundable up to $1,400, subject to phaseouts. The bill also includes a temporary $500 nonrefundable credit for other qualifying dependents (for example, older adults).
  • The credit for The Elderly & Permanent Disabled will remain in place.
  • There will be no change from current law regarding Exclusion of Gain From Sale of your Home.
  • The Obamacare Individual Mandate penalty would be eliminated.
  • AMT will be repealed for corporations. The AMT will remain for individuals but the exemptions will be increased to $70,300 for individuals and $109,400 for married taxpayers filing jointly, which means it will apply to fewer taxpayers.
  • Owners of pass-through companies AND sole proprietors (as written “taxpayers other than corporations”) will be taxed at their individual tax rates less a 20% deduction (to bring the rate lower) for business-related income, subject to certain wage limits and exceptions. The deduction would be disallowed for businesses offering “professional services” above a threshold amount; phase-ins begin at $157,500 for individual taxpayers and $315,000 for married taxpayers filing jointly.
  • The corporate tax rate would be lowered to 21% beginning next year.
  • The federal estate and gift tax will remain in place but the exemption would double.

Stay tuned for more updates.  If you want to discuss your specific situation, please contact us at 847.509.4100.