Landmark Tax Reform Bill Passes
By Scott Donnelly, CPA
The new tax reform law — commonly referred to as the
Tax Cuts and Jobs Act (TCJA) — is the most significant tax legislation in decades. Now
individuals are trying to digest the details and evaluate how the changes
will impact their tax situation.
The new law makes small reductions to income tax rates for most individual
tax brackets, and it significantly increases individual Alternative Minimum
Tax (AMT) and estate tax exemptions. But there's also some bad news
for individuals. The TCJA eliminates or limits many tax breaks. In addition,
much of the tax relief for individual taxpayers will be available only
temporarily.
Here are some of the key changes. Except where noted, these changes will
sunset after 2025.
- Reductions in individual income tax rates ranging from 0 to 4 percentage
points (depending on the bracket) to 10%, 12%, 22%, 24%, 32%, 35% and 37%
- Near doubling of the standard deduction to $24,000 (married couples filing
jointly), $18,000 (heads of households), and $12,000 (singles and married
couples filing separately)
- Elimination of personal exemptions
- Doubling of the child tax credit to $2,000 and other modifications intended
to help more taxpayers benefit from the credit
- Reduction of the adjusted gross income (AGI) threshold for the medical
expense deduction to 7.5% for regular and AMT purposes — for only
2017 and 2018
- New $10,000 limit on the deduction for state and local taxes (on a combined
basis for property and income taxes; $5,000 for separate filers)
- Reduction of the mortgage debt limit for the home mortgage interest deduction
to $750,000 ($375,000 for separate filers) with certain exceptions. For
mortgages taken on or before December 15, 2017 the limit is $1,000,000.
- Elimination of the deduction for interest on home equity debt
- Elimination of the personal casualty and theft loss deduction (with an
exception for federally declared disasters)
- Elimination of miscellaneous itemized deductions subject to the 2% floor
(such as certain investment expenses, professional fees and unreimbursed
employee business expenses)
- Elimination of the AGI-based reduction of certain itemized deductions
- Elimination of the moving expense deduction (with an exception for members
of the military in certain situations)
- Alternative Minimum Tax exemption increase to $109,400 for joint filers,
$70,300 for singles and heads of households, and $54,700 for separate filers
- Doubling of the gift and estate tax exemptions to $10 million (expected
to be $11.2 million for 2018 with inflation indexing)
In addition, the new law permanently eliminates the individual mandate
under the Affordable Care Act requiring taxpayers not covered by a qualifying
health plan to pay a penalty. The elimination of the individual mandate
is effective for months beginning after December 31, 2018. Also permanent
is the expansion of tax-free Section 529 plan distributions to include
those used to pay qualifying elementary and secondary school expenses
up to $10,000 per student per tax year.
Scott Donnelly is a CPA and Partner with PDM CPAs in Torrance. He is a
member and Co-Chair of Torrance Memorial’s Professional Advisory Council.
www.pdmcpas.com. (310) 802-7832.