Details on the New Tax Cuts and Jobs Act

Joni Norton, CPA/PFS, CFP, Consulting Partner, Markham Norton Mosteller Wright & Co., P.A.

The Tax Cuts and Jobs Act was signed into law at the end of 2017. The majority of these provisions became effective on January 1, 2018. This new Act impacts a majority of taxpayers, and our firm, Markham Norton Mosteller Wright & Co., P.A. would like to provide some explanation on these changes.

Tax Changes for Individuals:

The Tax Cuts and Jobs Act contains the following 7 tax brackets: 10%, 12%, 22%, 24%, 32%, 35%, and 37%.

There are new standard deduction amounts and they are: $24,000 for married taxpayers filing jointly, $18,000 for heads of households, and $12,000 for all other individuals. The additional standard deduction for elderly and blind taxpayers was unaffected by the bill.

The Act repeals all personal exemptions. However, it does create a new nonrefundable $500 credit for qualifying dependents who are not qualifying children, subject to income-based phaseouts.

Itemized deductions:

  • Medical expenses: The bill would reduce the threshold for deduction of medical expenses to 7.5% of adjusted gross income for 2017 and 2018.
  • State and local taxes: Individuals will now be able to deduct up to $10,000 ($5,000 for married taxpayers filing separately) in state and local income, sales tax or property taxes.
  • Mortgage interest: The home mortgage interest deduction would be modified to reduce the limit on acquisition indebtedness to $750,000 (from the current-law $1 million) on new or recent loans.
  • Home equity loans. The interest deduction for home equity loans or lines of credit is repealed if not used for home acquisition or improvements.
  • Charitable contributions: The Act increases the income-based percentage limit for charitable contributions of cash to public charities to 60% from the current 50% limitation.
  • Miscellaneous itemized deductions: All miscellaneous itemized deductions subject to the 2% floor under current law are repealed, including tax prep fees, investment management fees, unreimbursed employee business expenses, etc.
  • The Act repeals the income-based phaseout of itemized deductions.

Other provisions impacted by the new Act include future alimony, moving expenses, pass-through business income deductions, and the 529 plan.

The alternative minimum tax is also impacted. For tax years beginning after Dec. 31, 2017, the AMT exemption amount would increase to $109,400 for married taxpayers filing a joint return ($54,700 for married taxpayers filing a separate return) and $70,300 for all other individual taxpayers. The phaseout thresholds would increase to $1 million for married taxpayers filing a joint return and $500,000 for all other individual taxpayers.

When it comes to individual health insurance, this Act eliminates the penalty imposed on taxpayers who do not obtain minimum essential health insurance coverage starting in 2019.

This Act increases the amount of the child tax credit to $2,000 per qualifying child. The maximum refundable amount of the credit would be $1,400. The threshold at which the credit begins to phase out would be increased to $400,000 for married taxpayers filing a joint return and $200,000 for other taxpayers.

This Act doubles the estate and gift tax exemption for estates of decedents dying and gifts made after Dec. 31, 2017. The basic exclusion amount would increase from $5 million to $10 million and is indexed for inflation.

Tax Changes for Businesses:

For businesses, this Act increases the maximum amount a taxpayer may expense under Sec. 179 to $1 million and increases the phaseout threshold to $2.5 million. These amounts would be indexed for inflation after 2018.

The Act extends and modifies bonus depreciation, allowing businesses to immediately deduct 100% of the cost of eligible property in the year it is placed in service, through 2022. The bill would also remove the requirement that bonus depreciation is only available for new property.

For passenger automobiles placed in service after 2017, and for which bonus depreciation is not claimed, the maximum amount of allowable depreciation is $10,000 for the year in which the vehicle is placed in service, $16,000 for the second year, $9,600 for the third year, and $5,760 for the fourth and later years.

Other provisions impacting businesses from this Act include: elimination of the domestic production activities deduction, revised deductibility of entertainment and meal expenses, repeal of the corporate alternative minimum tax, changes to the net operating loss rules, and the creation of a new employer credit for paid family or medical leave.

Additionally this Act creates a new flat C corporate rate of 21%, effective January 1, 2018, to replace the current graduated system corporate tax rates.

The Tax Cuts and Jobs Act includes many additional changes and details related to those discussed in this article. It is recommended that you contact your local accountant and/or business consultant for guidance on this new law.

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