Highlights of recently enacted Tax Reform Bill (HR1 “Tax Cuts and Jobs Act of 2017”)
- 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.
- 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.
- 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.
- Retains the itemized deduction for medical expenses and lowers the floor to 7.5% of AGI (from 10%) in 2017 and 2018.
- Repeals miscellaneous itemized deductions that were subject to the 2% floor.
- Retains the Alternative Minimum Tax (AMT), though increases the exemption to $109,400 and raises the phaseout threshold to $1 million for joint filers.
- 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;
- 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);
- Increases the child tax credit to $2,000 ($1,400 – indexed to inflation – would be refundable) through 2025.
- Eliminates the Affordable Care Act’s individual mandate penalty
- 21% corporate tax rate.
- Full and immediate expensing for certain capital expenditures for five-years, followed by a five-year phase-out.
- 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.
- A shift to a territorial system of taxation.
- 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.
- Deemed repatriation of deferred foreign profits at a rate of 15.5% for cash and cash equivalents and 8% for illiquid assets.
- Preservation of private activity bonds (PABs).
- 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.