The proposed Tax Cuts and Jobs Act was released on November 2, 2017. While not law, there are some rather dramatic changes being suggested. The goal is to provide the “middle class” with tax savings. A few of the more important items being discussed:
- Changes to tax rates and brackets: These rates and brackets are for Married Filing Joint returns only (single brackets are half of MFJ): 12%: $0-$90,000 of income, 25%: $90,001-$260,000, 35%: $260,001-$1,000,000 and 39.6%: $1,000,000+
- Provides standard deduction of $12,200 single and $24,400 for married/families. This will convert quite a few itemizers to the standard deduction.
- Eliminates the deduction for personal exemptions.
- Increases the Child Tax Credit from $1,000 to $1,600 for children under age 17.
- Eliminates Lifetime Learning Credit and Tuition and Fees Deduction. The American Opportunity Credit remains and the credit would be made available for five years (Year 5 only 50% though) versus four years under present law.
- Repeals the phaseout on itemized deductions.
- Limits mortgage interest deductions on loans exceeding $500,000 ($1,000,000 under old law) and allows for only one qualified residence (two under the old law).
- Caps the property tax deduction at $10,000 per year.
- Eliminates the deduction of state and local taxes, tax preparation fees, moving expenses, adoption fees, unreimbursed employee expenses and for medical expenses.
- Eliminates the deduction for alimony paid, along with indicating it will not be taxable income to the receiver of alimony.
- Eliminates the Residential Energy Efficient Property credit after 2021.
- The Alternative Minimum Tax would eliminated.
- Changes those who may exclude the gain from sale of a principal residence. New rule would be you must claim as your personal residence in 5 out of 8 years (2 out of 5 under old law).
- Repeals rule permitting recharacterization of Roth IRA contributions as traditional IRA contributions and vice versa
- Increases the estate exemption to approximately $11,000,000. The estate tax would be fully phased out by year 2024.
- Creates a new 25% tax rate for “pass-through” businesses. Personal service businesses like law, accounting and consulting would not be eligible for the rate.
- Lowers the corporate tax rate to a flat 20% from a top rate of 35%.
- Allows 100% bonus depreciation through 2023.
- Section 179 depreciation would be increased to $5,000,000 (from $500,000) annually with a phaseout beginning at $20,000,000 (from $2,000,000).
- Eliminates NOL Carrybacks with exception of certain disaster losses which can be only carried back one year. The NOL carryover or carryback would be allowed only to the extent of 90% of the taxpayer’s taxable income.
- Like-kind exchanges would be allowed for real estate only; no longer allowed on equipment.
- Eliminates the Domestic Production Activities Deduction.
While there will be many modifications to the final bill and it does have to be passed by Congress, the present law lays the foundation for next year’s possible tax code.
By: Joe Turnes
Keep following BHT&D CPAs for further updates regarding this bill. Please feel free to contact one of our CPAs at (616) 642-9467 or request a complimentary accounting consultation.
