Tax Reform Becomes Law

(December 22, 2017) What is the New Tax Cuts and Jobs Act and What Does it Mean?

This morning, the President signed the Tax Cuts and Jobs Act (Renamed, to comply with Senate procedural rules, to the not-as-catchy “Act to Provide for Reconciliation Pursuant to Titles II and V of the Concurrent Resolution on the Budget for Fiscal 2018”).

The Act makes significant revisions to the Internal Revenue Code regarding business and personal taxes. The attorneys at Timoney Knox, LLP will be analyzing and digesting the new rules in the weeks to come.

However, below is a primer on some of the key changes:

• Personal income tax rates – Tax rates were lowered across most brackets with top rates going from 39.6% to 37% and individual rates of 10%, 12%, 22%, 24%, 32%, 35%, and 37%.
• Federal estate and gift tax – The Act effectively doubles the federal estate tax exemption, from $5 million to $10 million, with inflation adjustments from 2011. For 2018 the exemption is expected to be $11.2 million. The Act allows a married couple to shelter $22.4 million from federal estate tax.
• Pass-through business taxation. The Act provides for a new 20% deduction on business income from pass-through entities such as S-corporations, LLCs, and partnerships, with some limitations for professional services.
• Standard Deduction – The Act nearly doubles the standard deduction from $6,350 to $12,000 for single filers and from $12,700 to $24,000 for married couples filing jointly.
• Personal Exemptions – The new rules eliminate personal exemptions for taxpayers and dependents.
• Child Tax Credit – The Child Tax Credit from $1,000 to $2,000 and the phase-out is increased from $75,000 to $200,000 for single parents and from $110,000 to $400,000 for married couples. $1,400 of the $2,000 Child Tax Credit will be refundable, meaning Taxpayers who do not pay any income tax will still be able to obtain a refund of up to $1,400 of the Child Tax Credit.
• State and local tax deduction – The deduction for state local real estate taxes, income taxes and sales taxes will be capped at $10,000 per year.
• Mortgage interest deduction – Cap for mortgage interest deduction lowered from $1,000,000 to $750,000. These are provisions for existing loans and lines of credit.
• Corporate tax – The corporate tax rate is reduced from 35% to 21%.
• Affordable Care Act (“Obamacare”) – The individual mandate is repealed. A number of these provisions will expire after 2025.

Timoney Knox will be providing additional commentary in the weeks to come.