Keynotes of Tax Cuts & Jobs Act of 2017

INDIVIDUAL TAX PROVISIONS

 
Reduction and Simplification of Individual Income Tax Rates

 

Federal Individual Income Tax Rates for 2017

Single Individuals
 Not over $9,325 10% of the taxable income
 Over $9,325 but not over $37,950 $932.50 plus 15% of the excess over $9,325
 Over $37,950 but not over $91,900 $5,226.25 plus 25% of the excess over $37,950
 Over $91,900 but not over $191,650 $18,713.75 plus 28% of the excess over $91,900
 Over $191,650 but not over $416,700 $46,643.75 plus 33% of the excess over $191,650
 Over $416,700 but not over $418,400 $120,910.25 plus 35% of the excess over $416,700
 Over $418,400 $121,505.25 plus 39.6% of the excess over $418,400

 
Reduction and Simplification of Individual Income Tax Rates

Federal Individual Income Tax Rates for 2017

Married Individuals Filing Joint Returns and Surviving Spouses
 Not over $18,650 10% of the taxable income
 Over $18,650 but not over $75,900 $1,865 plus 15% of the excess over $18,650
 Over $75,900 but not over $153,100 $10,452.50 plus 25% of the excess over $75,900
 Over $153,100 but not over $233,350 $29,752.50 plus 28% of the excess over $153,100
 Over $233,350 but not over $416,700 $52,222.50 plus 33% of the excess over $233,350
 Over $416,700 but not over $470,700 $112,728 plus 35% of the excess over $416,700
 Over $470,700 $131,628 plus 39.6% of the excess over $470,700

 
Reduction and Simplification of Individual Income Tax Rates

Federal Individual Income Tax Rates for 2018 Under the Conference Agreement

Single Individuals
 Not over $9,525 10% of the taxable income
 Over $9,525 but not over $38,700 $952.50 plus 12% of the excess over $9,525
 Over $38,700 but not over $82,500 $4,453.50 plus 22% of the excess over $38,700
 Over $82,500 but not over $157,500 $14,089.50 plus 24% of the excess over $82,500
 Over $157,500 but not over $200,000 $32,089.50 plus 32% of the excess over $157,500
 Over $200,000 but not over $500,000 $45,689.50 plus 35% of the excess over $200,000
 Over $500,000 $150,689.50 plus 37% of the excess over $500,000

 
Reduction and Simplification of Individual Income Tax Rates

Federal Individual Income Tax Rates for 2018 Under the Conference Agreement

Married Individuals Filing Joint Returns and Surviving Spouses
 Not over $19,050 10% of the taxable income
 Over $19,050 but not over $77,400 $1,905 plus 12% of the excess over $19,050
 Over $77,400 but not over $165,000 $8,907 plus 22% of the excess over $77,400
 Over $165,000 but not over $315,000 $28,179 plus 24% of the excess over $165,000
 Over $315,000 but not over $400,000 $64,179 plus 32% of the excess over $315,000
 Over $400,000 but not over $600,000 $91,379 plus 35% of the excess over $400,000
 Over $600,000 $161,379 plus 37% of the excess over $600,000

 
Reduction and Simplification of Individual Income Tax Rates

 

Effective date − The provision applies to taxable years beginning after December 31, 2017.

The provision’s rate structure does not apply to taxable years beginning after December 31, 2025.

Increase in standard deduction and repeals personal exemptions

Old law:

$6,350 standard deduction for single taxpayers and $12,700 for married couples, filing jointly.
Personal exemptions of $4,050 allowed for each family member. The personal exemption amount
is phased out in the case of an individual with AGI in excess of $313,800 for married taxpayers filing jointly, $287,650 for heads of household, $156,900 for married taxpayers filing separately, and $261,500 for all other filers.

New law:

$12,000 standard deduction for single taxpayers and $24,000 for married couples, filing jointly. Personal exemptions repealed.
 

Individual State and Local Tax Deductions

 

Old law:

Individuals can deduct the state and local taxes they pay, but the value is subject to certain limits for high earners.

 

New law:

Individuals can deduct no more than $10,000 worth of the deductions, which could include a combination of property taxes and either sales or income taxes.

 

Mortgage Interest Deduction

 

Old law:

Deductible mortgage interest is capped at loans of $1 million. Home equity loan is capped at $100,000.

 

New law:

Deductible mortgage interest for new purchases of first or second homes would be capped at loans of $750,000 starting on Jan. 1, 2018.
DISALLOWANCE OF HOME EQUITY INDEBTEDNESS INTEREST.

 

Mortgage Interest Deduction

 

LIMITATION ON ACQUISITION INDEBTEDNESS shall not apply to any indebtedness incurred on or before December 15, 2017, and, in applying such subclause to any indebtedness incurred after such date, the limitation under such subclause shall be reduced (but not below zero) by the amount of any indebtedness incurred on or before December 15, 2017, which is treated as acquisition indebtedness for purposes of this subsection for the taxable year.

 

Mortgage Interest Deduction

 

BINDING CONTRACT EXCEPTION—In the case of a taxpayer who enters into a written binding contract before December 15, 2017, to close on the purchase of a principal residence before January 1, 2018, and who purchases such residence before April 1, 2018, subclause (III) shall be applied by substituting ‘April 1, 2018’ for ‘December 15, 2017’.

 

Mortgage Interest Deduction

 

TREATMENT OF LIMITATION IN TAXABLE YEARS AFTER DECEMBER 31, 2025:
In the case of taxable years beginning after December 31, 2025, the limitation under subparagraph (B)(ii) shall be applied to the aggregate amount of indebtedness of the taxpayer described in subparagraph (B)(i) without regard to the taxable year in which the indebtedness was incurred.
 

Mortgage Interest Deduction

 

TREATMENT OF REFINANCINGS OF INDEBTEDNESS:
IN GENERAL—In the case of any indebtedness which is incurred to refinance indebtedness, such refinanced indebtedness shall be treated for purposes of clause (i)(III) as incurred on the date that the original indebtedness was incurred to the extent the amount of the indebtedness resulting from such refinancing does not exceed the amount of the refinanced indebtedness.
 

Medical Expense Deduction

 

Old law:

Qualified medical expenses that exceed 10 percent of the taxpayer’s
adjusted gross income are deductible.

 

New law:

Reduce the threshold to 7.5 percent of AGI for 2017 and 2018.

 

Child Tax Credit

 

 Old law:

A $1,000 credit for each child under 17. The credit begins phasing out for couples earning more than $110,000. The credit is at least partially refundable to qualified taxpayers who earned more than $3,000.

New law:

Double the credit to $2,000 and provide it for each child under 18 through 2024. Raise the phase-out amount to $400,000, and cap the refundable portion at $1,400 in 2018.

 

Estate Tax

 

Old law:

Applies a 40 percent levy on estates worth more than $5.49 million for individuals and $10.98 million for couples.

 

New law:

Double the thresholds so the levy applies to fewer estates. The higher thresholds would sunset in 2026.

 

Obamacare Individual Mandate

 

Old law:

An individual who fails to buy health insurance must pay penalties of $695 (higher for families) or 2.5 percent of their household income -- whichever is higher, but capped at the national average cost of the most basic, low- premium, high-deductible plan.

 

New law:

Repeal the penalties.

 

Individual Alternative Minimum Tax

 

Old law:

Individual AMT can apply after exemption level of $54,300 for singles and
$84,500 for married, joint filers, and the exemptions phase out at higher incomes.

New Law:

Increase the exemption to $70,300 for singles and $109,400 for joint filers. Increase the phase-out threshold to $500,000 for singles and $1 million for joint filers. The higher limits would expire on Jan. 1, 2026.

 

529 ACCOUNT FUNDING FOR ELEMENTARY AND SECONDARY EDUCATION

 

Qualified Higher Education Expense shall include (distribution no more than $10,000 per student per year):
(A) expenses for tuition in connection with enrollment or attendance at an elementary or secondary public, private, or religious school, and
(B) expenses for
(i) curriculum and curricular materials,
(ii) books or other instructional materials,
(iii) online educational materials,
(iv) tuition for tutoring or educational classes outside of the home (but only if the tutor or instructor is not
related to the student),
(v) dual enrollment in an institution of higher education, and
(vi) educational therapies for students with disabilities, in connection with a homeschool (whether treated as a homeschool or a private school for purposes of applicable State law).

 
Suspension of Certain Miscellaneous Itemized Deductions Subject to the Two-Percent Floor

 

 Expenses for the production or collection of income.
 Tax preparation expenses.
 Unreimbursed expenses attributable to the trade or business of being
an employee.

 The provision does not apply for taxable years beginning after December 31, 2025.

 

 

Other Changes

 

 SUSPENSION OF DEDUCTION FOR MOVING EXPENSES.
 REPEAL OF DEDUCTION FOR ALIMONY PAYMENTS. CORRESPONDING REPEAL OF PROVISIONS PROVIDING FOR INCLUSION OF ALIMONY IN GROSS INCOME. Effective date: 1/1/2019
 EXTENSION OF TIME LIMIT FOR CONTESTING IRS LEVY: from 9 months to 2 years.
 REPEAL OF TECHNICAL TERMINATION OF PARTNERSHIPS: Striking “within a 12-month period there is a sale or exchange of 50 percent or more of the total interest in partnership capital and profits.”
 MODIFICATIONS OF RULES FOR EXPENSING DEPRECIABLE BUSINESS ASSETS: SECTION 179 DOLLAR LIMITATION INCREASED FROM $500,000 TO $1,000,000.

 

 

BUSINESS TAX PROVISIONS
 

Corporate Tax Rate

 

Old law:

 

35 percent

 

New law:

21 percent, beginning in 2018.

 

Corporate Alternative Minimum Tax

 

Old law:

Applies a 20 percent rate as part of a parallel tax system that limits tax benefits to prevent large-scale tax avoidance. Companies must calculate their ordinary tax and AMT tax, and pay whichever is higher.

 

New law:

Repealed.

 

Expensing Equipment

 

Old law:

Businesses must take depreciation, spreading the recognition of their equipment
costs for tax purposes over several years.

 

New law:

Businesses could fully and immediately deduct the cost of certain equipment purchased after Sept. 27, 2017 and before Jan. 1, 2023. After that, the percentage of cost that could be immediately deducted would gradually phase down.

 

Repatriation

 

Old law:

The U.S. taxes multinationals on their global earnings at the corporate rate of 35 percent, but allows them to defer taxes on those foreign earnings until they bring them back to the U.S., or “repatriate” them.

New law:

U.S. companies’ overseas income held as cash would be subject to a
15.5 percent rate, while non-cash holdings would face an 8 percent rate. Companies can make the payments in eight annual installments.

 

Pass-Through Deduction

 

Old law:

Pass-through businesses, which include partnerships, limited liability companies, S corporations and sole proprietorships, pass their income to their owners, who pay tax at their individual rates.

New law:

Owners could apply a 20 percent deduction to their business income, subject to limits that would begin at $315,000 for married couples (or half that for single taxpayers).

 
DETERMINATION OF DEDUCTIBLE AMOUNT FOR EACH TRADE OR BUSINESS

 

the lesser of— (A or B):
(A) 20 percent of the taxpayer’s qualified business income with respect to
the qualified trade or business, or
(B) the greater of— (i or ii)
(i) 50 percent of the W–2 wages with respect to the qualified trade or business, or
(ii) the sum of 25 percent of the W–2 wages with respect to the qualified trade or business, plus 2.5 percent of the unadjusted basis immediately after acquisition of all qualified property.

 

QUALIFIED BUSINESS INCOME

IN GENERAL—The term ‘qualified business income’ means, for any taxable year, the net amount of qualified items of income, gain, deduction, and loss with respect to any qualified trade or business of the taxpayer. Such term shall not include any qualified REIT dividends, qualified cooperative dividends, or qualified publicly traded partnership income.

 
Exceptions of Qualified Items of Income, Gain, Deduction, or Loss

 

(i) Any item of short-term capital gain, short-term capital loss, long-term capital gain, or long-term capital loss.
(ii) Any dividend, income equivalent to a dividend, or payment in lieu of dividends described in section 954(c)(1)(G).
(iii) Any interest income other than interest income which is properly allocable to a trade or business.
(iv) Any item of gain or loss described in subparagraph (C) or (D) of section 954(c)(1)
(v) Any item of income, gain, deduction, or loss taken into account under section 954(c)(1)(F)
(ii) thereof and other than items attributable to notional principal contracts entered into in transactions qualifying under section 1221(a)(7)).
(vi) Any amount received from an annuity which is not received in connection with the trade or business.

 

QUALIFIED TRADE OR BUSINESS

 

(1) IN GENERAL.—The term ‘qualified trade or business’ means any trade or business other than—
(A) a specified service trade or business, or
(B) the trade or business of performing services as an employee.
(2) SPECIFIED SERVICE TRADE OR BUSINESS—The term ‘specified service trade or business’ means
any trade or business—
(A) which is described in section 1202(e)(3)(A) (applied without regard to the words ‘engineering, architecture,’) or which would be so described if the term ‘employees or owners’ were substituted for ‘employees’ therein, or
(B) which involves the performance of services that consist of investing and investment management, trading, or dealing in securities (as defined in section 475(c)(2)), partnership interests, or commodities (as defined in section 475(e)(2)).

 
EXCEPTION FOR SPECIFIED SERVICE BUSINESSES BASED ON TAXPAYER’S INCOME

 

IN GENERAL—
If, for any taxable year, the taxable income of any taxpayer is less than the sum of the threshold amount plus $50,000 ($100,000 in the case of a joint return), then any specified service trade or business of the taxpayer shall not fail to be treated as a qualified trade or business.
The threshold amount: $157,500 for a single return and $315,000 for a
joint return.

 
MODIFICATIONS TO DEPRECIATION LIMITATIONS ON LUXURY AUTOMOBILES

 

Old law:

(i) $2,560 for the 1st taxable year in the recovery period,
(ii) $4,100 for the 2nd taxable year in the recovery period,
(iii) $2,450 for the 3rd taxable year in the recovery period, and
(iv) $1,475 for each succeeding taxable year in the recovery period.

New law:

(i) $10,000 for the 1st taxable year in the recovery period,
(ii) $16,000 for the 2nd taxable year in the recovery period,
(iii) $9,600 for the 3rd taxable year in the recovery period, and
(iv) $5,760 for each succeeding taxable year in the recovery period.

 

Listed property

 

The provision removes computer or peripheral equipment from the definition of listed property.
Such property is therefore not subject to the heightened substantiation requirements that apply to listed property.

 

© Julia Brown, CPA