facebook twitter instagram linkedin google youtube vimeo tumblr yelp rss email podcast blog search

Sweeping Tax Bill Poised to Become Law

%POST_TITLE% Thumbnail

Congressional Republicans unveiled the final details of their sweeping tax legislation late Dec. 15 and are poised to sign the bill into law before the Christmas holiday.

The House of Representatives is expected to approve the bill on Dec. 19, and the Senate looks set to do so later that day or Dec. 20. Both the House and Senate must pass the bill in exactly the same form. The  bill appears on track to pass the Senate, likely with the support of all 52 Republicans. All 46 Democrats and the two independents are expected  to oppose the bill. The only Republican to vote against the previous  version of the bill, Senator Bob Corker, R-Tenn., announced on Dec. 15 that he would support the final version.

President Donald Trump has indicated that he would sign the bill into law immediately.

Most of the bill’s provisions are due to take effect Jan. 1, 2018. In general, that wouldn’t affect 2017 filings, but could still pose a significant challenge to the IRS, corporations and individuals, who will have to both get up to speed on the changes and make the necessary systems updates to handle them. It is widely expected that some delays could occur in implementation.

What’s included in the new tax bill?

Here are the highlights of the legislation:

  • New individual tax rates: The bill sets  seven individual brackets at 10%, 12%, 22%, 24%, 32%, 35% and 37%. The  new 37% top rate would apply to taxable income in excess of $500,000 for  single filers and $600,000 for joint filers.
  • No changes to capital gains and dividends: Capital  gains and qualified dividends would continue to be taxed at the current  0%, 15% and 20% rates, depending on income. Wealthier filers would  continue to pay an additional 3.8% tax on investment income, known as  the Net Investment Income Tax.
  • Increased standard deduction: The standard deduction would nearly double, to $12,000 for single filers and $24,000 for joint filers.
  • Increased child tax credit: The per-child tax credit would double from $1,000 to $2,000.
  • Increased exemption for Alternative Minimum Tax (AMT): The  AMT would be retained for individuals, but the exemption and phase-out  amounts have sharply  increased. Consult a tax advisor for more details  on how this provision could apply to your situation
  • Mortgage interest deduction: Individuals  would be allowed to deduct interest paid on new mortgages (issued after  Jan. 1, 2018) of up to $750,000. That’s down from the current cap of $1  million. The deduction would also apply to second homes, but not for  home equity lines of credit.
  • State and local tax deduction: Taxpayers would be allowed to deduct up to $10,000 in a combination of property tax and income tax (or sales tax).
  • Estate tax exemption doubled: Estates of up to $11 million (or $22 million for couples) would be exempt from taxation.
  • Numerous other deductions and tax credits repealed: The bill repeals deductions for tax preparation, moving expenses and alimony payments, among others.
  • Expiration of most individual tax provisions: Virtually  all of the provisions that apply to individuals are set to expire at  the end of 2025. A future Congress would have to vote to extend them,  otherwise they would revert to 2017 levels.  
  • Repeal of the individual mandate: The bill  repeals, beginning in 2019, the requirement set by the Affordable Care  Act that individuals purchase health insurance or pay a penalty.
  • Preserves deduction for medical expenses: Medical  expenses above 7.5% of adjusted gross income would be deductible in  2017 and 2018. Beginning in 2019, that would rise to 10%.
  • Reduction in the corporate tax rate: Corporations would be taxed at 21% beginning in 2018, down from today’s top corporate rate of 35%.
  • Reduction in taxes for “pass-through” businesses: Most  so-called “pass-through” businesses, such as S corporations, limited liability corporations, partnerships and sole proprietorships, including those owned by trusts, would be allowed to deduct 20% of their income. There are special rules for certain types of services businesses. This provision is extremely complicated. Investors should contact their tax advisor for details.

Other issues of particular interest to investors:

  • No changes to cost-basis rules: The  Senate version of the legislation would have required investors to use  the “first in, first out” (FIFO) method when calculating their  cost-basis for stock sales. That provision was dropped from the final  agreement. Investors will continue to have the ability to choose which  lots of stock they are selling.
  • Expansion of 529 college savings accounts: Up to $10,000 per year of money in a 529 college savings plan can be used to pay for K-12 school tuition or homeschooling.
  • No major changes to retirement savings accounts: Contribution limits to IRAs, Roth IRAs, 401(k)s and other retirement plans were not changed. 

Let us help you develop a balanced plan that incorporates the tax minimizing strategies that are most suitable for you.

Learn More About Our Tax Planning Services