Summary of Tax Cuts and Jobs Act of 2017

Dec 27, 2017 | Estate Taxes

Highlights of recently enacted Tax Reform Bill (HR1 “Tax Cuts and Jobs Act of 2017”)

Individuals

  1. Double the estate, GST and gift tax exemption ($5.6 million to $11.2 million, indexed for inflation) for estates of decedents dying and gifts made after December 31, 2017, and before January 1, 2026.
  2. Retains seven individual income tax brackets, but at reduced rate, the highest rate (37%) begins at a taxable income threshold of $600,000 for couples who are married filing jointly, (MFJ) and $500,000 for single taxpayers, including a top marginal rate of 37 percent – though the rates sunset at the end of 2025.
  3. Allows 529 plans to be used on a limited basis for private elementary and secondary education, in addition to its existing use for higher education.
  4. Retains the itemized deduction for medical expenses and lowers the floor to 7.5% of AGI (from 10%) in 2017 and 2018.
  5. Repeals miscellaneous itemized deductions that were subject to the 2% floor.
  6. Retains the Alternative Minimum Tax (AMT), though increases the exemption to $109,400 and raises the phaseout threshold to $1 million for joint filers.
  7. Increases the standard deduction to $12,000 for single filers, $18,000 for heads of household, and $24,000 for joint filers – though this also sunsets in 2025;
  8. Eliminates many credits and deductions with the notable exceptions of deductions for charitable contributions, mortgage interest (lowered to a cap of $750,000 of mortgage debt), and state and local taxes (lowered to a cap of $10,000 for state and local income and property taxes);
  9. Increases the child tax credit to $2,000 ($1,400 – indexed to inflation – would be refundable) through 2025.
  10. Eliminates the Affordable Care Act’s individual mandate penalty

Corporations

  1. 21% corporate tax rate.
  2. Full and immediate expensing for certain capital expenditures for five-years, followed by a five-year phase-out.
  3. A cap on the net interest deduction for larger businesses of 30% of earnings before interest, taxes, depreciation, and amortization (EBITDA) for four years and a cap of 30% of earnings before interest and taxes (EBIT) after that.
  4. A shift to a territorial system of taxation.
  5. A base erosion anti-abuse tax (BEAT) of 5% of modified tax liability over regular tax liability for the first year, then a rate of 10% until 2025, and then a rate of 12.5% beginning in 2026.
  6. Deemed repatriation of deferred foreign profits at a rate of 15.5% for cash and cash equivalents and 8% for illiquid assets.
  7. Preservation of private activity bonds (PABs).
  8. Preservation of the Low-Income Housing Tax Credit (LIHTC) and (with some limitations) of the Historic Tax Credit.

Please let me know if you have any questions.

Best,
Pat