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e.Insight

Current Issue | February 12, 2018

2017 Tax Reform Act: Reference Guide to Key Provisions

By: Julia Weaver, J.D., LL.M., Director, Family Office Services, Kara Talbott, CPA/PFS, CFP®, Senior Wealth Strategist and Scott Simmons, J.D., LL.M., Wealth Strategist, Oxford Financial Group, Ltd.


The House and Senate passed the 2017 Tax Reform Act on December 20, 2017. Our e.Insight article, Unwrapping Tax Reform, highlights certain provisions in the Act of particular interest to individual taxpayers. The following provides a bullet-point summary of various provisions from the Act affecting both individuals and business.

INDIVIDUAL PROVISIONS
All individual tax provisions expire 12.31.2025.

Tax Rates and Brackets

Individual Income Tax Rate Brackets:

  Single Married
10% $0 - $9,525 $0 - $19,050
12% $9,526 - $38,700 $19,051 – $77,400
22% $38,701 – $82,500 $77,401 – $165,000
24% $82,501 – $157,500 $165,001 – $315,000
32% $157,501 – $200,000 $315,001 – $400,000
35% $200,001 - $500,000 $400,001 – $600,000
37% $500,001+ $600,001+

Capital Gain Rate Brackets:

15% Rate Threshold - $38,600 Rate Threshold - $77,200
20% Rate Threshold - $425,800 Rate Threshold - $479,000

Deductions

Standard Deductions:

Single $12,000
Head Of Household $18,000
Married Filing Jointly $24,000
  • Personal Exemptions are eliminated.
  • Pease Limitation on Itemized Deductions are repealed.
  • Home Mortgage Interest Deduction for acquisition indebtedness incurred after December 15, 2017 will be limited to indebtedness of no more than $750,000. This cap rises back to $1,000,000 in 2026.

    Current acquisition indebtedness, incurred before December 15, 2017, remains deductible up to $1,000,000.

    Refinanced debt will be treated as incurred on the date of the original indebtedness so long as no increased indebtedness results, the original term of indebtedness has not expired and the refinanced term does not extend beyond the original term of indebtedness.

    Home equity interest is no longer deductible for tax years 2018 through 2025.
  • State and Local Income Tax Deduction and State Property Tax Deduction allowed up to a combined $10,000 for individuals only.

    Cannot prepay 2018 state and local income taxes and deduct them in 2017. “… an amount paid in a taxable year beginning before January 1, 2018, with respect to a State or local income tax imposed for a taxable year beginning after December 31, 2017, shall be treated as paid on the last day of the taxable year for which such tax is so imposed.”
  • Limitation for cash contributions to public charities is increased to 60% of AGI.
  • Personal Casualty Losses Deduction is repealed, with the exception of if the loss occurs in a federally declared disaster area.
  • Medical Expense Deduction is allowed for medical expenses exceeding 7.5% of Adjusted Gross Income in 2017 and 2018. Beginning in 2019, such expenses must exceed 10% of AGI.
  • Miscellaneous Itemized Deductions are repealed.
  • Teacher Expense Credit and Student Loan Interest Deduction are retained as above the line deductions.

Other Individual Income Tax Planning Provisions

  • Continues to allow current cost basis options for sales and dispositions of securities. (Note – The proposal to require First in First out (FIFO) for securities sales and dispositions was rejected.)

  • AMT Remains But With Increased Exemptions
Single $70,300
Married Filing Jointly $109,400

  • Exclusion of up to $500,000 for married couples and $250,000 for single filers of capital gain from the sale of a principal residence remains if owned and used as such for at least 2 out of last 5 years.
  • “Kiddie Tax” rules that taxed a child’s unearned income above a certain level at the parent’s tax rate are repealed. Effective 1/1/2018, a child’s unearned income will instead be taxed at Trust and Estate Tax Rates.
  • Increases the Child Tax Credit to $2,000, beginning 1/1/2018 for a child under the age of 17. Additionally it is refundable up to $1,400 and subject to phase-out’s that will begin at $400,000 rather than $110,000 for MFJ.
  • Creates a new credit of $500 for non-child dependents.
  • Alimony payments will no longer be an above the line deduction for the payor and are no longer included in the income of the recipient for the following new agreements entered into after 2018: divorce decrees, separate agreements and certain modifications.
  • 529 plans can be used for elementary and high school expenses up to $10,000 per year as well as higher education expenses.
  • Like-Kind exchanges will be limited to real property.
  • Repeals the Affordable Care Act mandate requiring individuals to have Health Insurance.
  • Eliminates recharacterization of Roth IRA conversions.
  • Interest from an advanced refunding bond issued after 12/31/2007 is no longer tax exempt.

ESTATE, GIFT AND GST PROVISIONS

  • Combined Estate/Gift Exemption and GST Exemption increases to $11,200,000 beginning 1.1.2018 and will increase annually for inflation through 12.31.2025.
  • Combined Estate/Gift Exemption and GST Exemption will return to current levels, indexed for inflation, on 12.31.2025.
  • Retains step-up in cost basis at death.

CORPORATE TAX HIGHLIGHTS

  • Business Tax Rate is reduced to 21% with limits on net interest expense deductions effective 1.1.2018.
  • Expensing of Capital Investments of machines and equipment is allowed through 2022.
  • Repeals Corporate AMT as of 1/1/2018.
  • Eliminates NOL carrybacks; unlimited carryforwards limited to 80% of current year taxable income.
  • Carried Interest provisions are modified to require a three year holding period for certain partnership interests transferred in connection with the performance of services in order to receive capital gain tax treatment.
  • Deduction for entertainment, amusement or recreation; membership dues for a club organized for business, pleasure, recreation or other social purposes; or a facility used in connection with the above is repealed as of 1.1.2018.
  • Deduction for Employee Achievement Awards paid in cash, cash equivalents, gift coupons or certificates as well as vacations, meals, lodging or tickets to theater or sporting events, stocks, bonds or securities is repealed as of 1.1.2018.

PASS-THROUGH ENTITY HIGHLIGHTS

  • 20% deduction will be available on individual return for income from certain pass-through entities and allowed between 1.1.2018 and 12.31.2025.
  • Deduction does not apply to taxpayers with income from “Specified Service Businesses” whose taxable income exceeds $315,000 for married individuals filing jointly or $157,500 for other individuals (indexed for inflation).

    A “Specified Service Business” is any trade or business involving the performance of services in the fields of health, law, accounting, actuarial science, performing arts, consulting, athletics, financial services, brokerage services or any trade or business where the principal asset of such trade or business is the reputation or skill of one (1) or more of its employees. Does not include engineering and architecture service.
  • The 20% deduction is a reduction from taxable income only, not AGI, and is available to both non-itemizers and itemizers.

    The 20% deduction is limited to the greater of 50% of the owner’s allocable share of W-2 wages paid by the business, or the sum of 25% of the W-2 wages PLUS 2.5% of the unadjusted basis, immediately after acquisition, of all qualified property which is tangible property subject to depreciation, held by a qualified trade or business and used in the production of qualified business income.

    Wages or guaranteed payments continue to be taxed as ordinary income. The reasonable compensation standards for S-corporation owners remains in place.

The above commentary represents the opinions of the authors as of 12.20.17 and is subject to change at any time due to market or economic conditions or other factors.