The Tax Cuts and Jobs Act was signed into law on December 22, 2017. It is the largest tax reform legislation since 1986 and will affect taxpayers in all income brackets.
Here is a summary of the key provisions in the new tax law.
- Seven tax brackets: 10%, 12%, 22%, 24%, 32%, 35%, 37%
- Personal standard deduction: Married filing jointly:$24,000, Head of Household: $18,000, Single: $12,000
- Child tax credit: $2,000 per child (refundable to $1,400 per child); $500 for non-child dependents
- Personal Exemption: Suspended
- Personal state income, sales tax, and property tax: Deduction for property tax and either income or sales tax limited to $10,000
- Mortgage Interest: Deductible on up to $750,000 of debt (including second home); no home equity interest deduction
- Medical expenses: Deductible to the extent they exceed 10% of adjusted gross income (AGI) (7.5% of AGI for 2017 and 2018)
- Alimony: Not deductible to recipient for decrees executed or modified after 2018
- Individual health insurance mandate: requirement to have minimum essential health insurance coverage repealed
- Moving expenses: Suspended, except for members of the Armed Forces on active duty
- Personal casualty and theft losses: Suspended, except if incurred in a federally-declared disaster
- Miscellaneous itemized deductions subject to 2% floor: Suspended. This includes employee business expenses, investment advisory fees, and tax preparation fees
- 529 plan usage expanded: qualified higher education expenses was expanded to include tuition at a elementary or secondary public, private or religious school, up to a $10,000 limit per tax year.
- Maximum corporate rate: 21%
- Depreciation: Immediate expensing of most new and used property (excluding structures) through 2022; section 179 limit increased to $1 million
- Cash method of accounting: Expanded to include business with less than $25 million in receipts with special rules for tracking inventory costs
- Domestic production activities deduction: Repealed after 2017
- Net operating losses (NOL): Carryback repealed except farms (two years); indefinite carryover deduction limited to 80% of pre-NOL income for losses generated after 2017
- Depreciable life of buildings: Unchanged
- Business interest: Limitation only applies to businesses with receipts that exceed 25 million