Education: Summary of Tax Cuts and Jobs Act
No doubt you’ve heard about the “Tax Cuts and Jobs Act,” the tax reform initiative that became law effective January 1st, 2018. While tax professionals, investors, and even senators still figure out the finer nuances of this new law, the following is a brief summary of some of the key changes in the tax code enacted for 2018. As always, we highly recommend you consult your tax professional for any specific ramifications.
Individual Tax Plan Changes
For tax years beginning after Dec. 31. 2017 and before Jan. 1, 2026, new tax rates for individuals are: 10%, 12%, 22%, 24%, 32%, 35%, and 37%. The Tax Cuts and Jobs Act also provides four tax rates for estates and trusts: 10%, 24%, 35%, and 37%, respectively.
The Act eliminates most itemized deductions, but keeps deductions for charitable contributions, property taxes, mortgage interest, and retirement savings.
Limits to the mortgage interest deduction are now only on the first $750,000 of the loan. Interest on home equity lines of credit are no longer deductible. Current mortgage holders are not affected.
Taxpayers can deduct up to $10,000 in state and local taxes. However, they must choose between property and income taxes or sales taxes.
The standard deduction is doubled.
The “Obamacare Tax” for those without health insurance is repealed.
The Act eliminates personal exemptions.
The Act doubles the estate tax exemption to $11.2 million for singles and $22.4 million for couples.
Alternative Minimum Tax remains.
It increases the exemption from $54,300 to $70,300 for singles, and from $84,500 to $109,400 for joint.
The exemptions phase out at $500,000 for singles and $1 million for joint.
The exemption reverts to current levels in 2026.
The Act increases the Child Tax Credit from $1,000 to $2,000. Credit is refundable up to $1,400. It increases the income level from $110,000 to $400,000 for married tax filers.
It allows a $500 credit for each non-child dependent.
Business Tax Plan Changes
The Act lowers the maximum corporate tax rate from 35% to 21%.
It raises the standard deduction to 20% for pass-through businesses. The deductions are limited once the income reaches $157,500 for singles and $315,000 for joint.
The Act limits a corporation’s ability to deduct interest expense to 30% of income. For the first four years, income is considered EBITDA, but reverts to earnings before interest and taxes thereafter.
It allows businesses to deduct the cost of depreciable assets in one year instead of amortizing them over several years. It does not apply to structures. To qualify, the equipment must be purchased after September 27, 2017, and before January 1, 2023.
The Act eliminates the corporate AMT.
You can read all the finer details at: https://www.congress.gov/bill/115th-congress/house-bill/1
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