Tax Cuts and Jobs Act

By: Derek Morgan

As most people have heard, the Tax Cuts and Jobs Act was passed by Congress on December 21, 2017 was signed into law on December 22, 2017.  The law brings sweeping reform to the Internal Revenue Code by restructuring the base of taxation for both individuals and corporate taxpayers alike.  The key provisions you need to know about immediately, however, are as follows:

Tax Changes effective in 2017:

  • Expanded Bonus depreciation from 50% cost recovery to 100% for assets purchased on 9/27/17 and later. The law expanded this provision to allow bonus depreciation on used equipment as well as new equipment placed in service.

Individual Tax Changes effective in 2018:

  • Reduced rates brackets from 10%, 15%, 25%, 28%, 33%, 35%, 39.6% to 10%, 12%, 22%, 24%, 32%, 35%, 37%.
  • Doubled Standard Deduction to $12,000 for single, $18,000 for Head of Household, and $24,000 for married filing joint.
  • Removal of the personal exemptions.
  • Increased Child Tax Credit to $2,000 per child.   Up to $1,400 of the credit is refundable.  Phase out will now start at $200,000 which opens up the potential for many middle class families previously unable to claim the credit.
  • Increase the exemption for Alternative Minimum Tax to $70,300 ($109,400 for joint filers).
  • Removal of charitable donation deduction for amounts paid in return for the rights to purchase athletic ticket. This previously had been 80% deductible.
  • Repatriation (the movement of untaxed funds from foreign subsidiaries to the United States) of overseas-held earnings will be taxed at a reduced rate of 15.5% in 2018.
  • Changes to Itemized Deductions
    • Limits deductibility of non-business taxes paid (real estate, auto, etc.) to $10,000.
    • Limit on mortgage debt allowable for interest deduction moved to $750,000. Debt in place prior to 12/31/2018 grandfathered in to the $1 million previous limitation.
    • Elimination of interest deduction for HELOC loans. No transition into 2018 as with mortgage interest.

Business Changes effective in 2018:

  • Repeal of the Domestic Manufacturer’s Deduction.
  • Addition of a pass-through deduction for non-service based businesses. Please consult us for more information on the applicability of this new deduction.
  • 21% flat corporate tax rate.
  • Higher automobile depreciation write-offs.
  • Repeal of Like-Kind Exchange treatment for all property except real property.
  • Cap of 30% of adjusted taxable income for interest expense. Applies to businesses with average gross receipts of $25 million or more.

There are many more provisions that may apply to special cases in the law beyond the high points listed above.  Please contact us if you have any questions, or would like more information on how this tax bill may impact you.