The legislature is busy during these holidays. The House and Senate Conference Committee released its report and legislative text on December 15, 2017, the Tax Cuts and Jobs Act of 2017 (“TCJA”). The law is expected to be signed by the President by Christmas Day. The following are highlights and, of course, represent only a small portion of TCJA, as the TCJA is over ONE THOUSAND pages! I obtained my information from a Leimberg Information Services, Inc. (“LISI”) article that members were authorized to share.
- The income tax rates are modified to be 10%, 12%, 22%, 24%, 32% 35% and 37% effective January 1, 2018. SUNSETS AFTER 2025.
- The deduction for personal exemption is REPEALED and the standard deduction is increased to $12,000 for a single person and $24,000 for a married couple.
- Deduction for state and local income taxes, sales and property taxes are capped at $10,000. SUNSETS AFTER 2025.
- Deduction for mortgage interest is allowed only on up to $750,000 of acquisition indebtedness. Mortgages incurred on or before 12/15/107 are grandfathered under the $1 million limit of acquisition indebtedness. SUNSETS AFTER 2025.
- Home equity interest deduction is REPEALED. SUNSETS AFTER 2025.
- Increase charitable contribution limit to 60% of adjusted gross income for cash contributions. SUNSETS AFTER 2025.
- AMT (alternative minimum tax) exemption has increased.
- Corporate income tax rate is reduced to 21% and is PERMANENT.
- Corporate AMT is REPEALED.
- A new section is created for a 20% deduction for the NON-WAGE portion of pass through income- this section is very complicated and you will need to go through different scenarios to see if you benefit.
- DOUBLING of the ESTATE, GIFT and GST Exemption. SUNSETS AFTER 2025.
- Various other tax provisions:
- Section 179 deduction limit is increased to $1 million.
- Tax preparation fees are no long deductible. SUNSETS AFTER 2025.
- Moving expenses are no long deductible. SUNSETS AFTER 2025.
- Re-characterization of IRA conversion is eliminated.
- 529 Plans can also be used for K-12 schools and homeschooling.
- Alimony deduction for payor ex-spouse and inclusion for payee ex-spouse is REPEALED for any divorce executed AFTER December 31, 2018 and for certain divorce instrumentS executed on or before December 31, 2108 and modified after that date.
Whether the TCJA is a Christmas present or sack of coal depends on your tax bracket, your deductions and your business. The increase in the estate, gift and GSTT exemption is definitely a present for most clients. However, remember the Grinch will be back after 2025, if not sooner (you never know what a new Congress will do), so be sure you have planned for the contingencies. Time will tell if the TCJA is truly a present or a sack of coal.
ADVICE: Review your tax brackets in 2017 and 2018. Should you accelerate income to 2017 or prepay expenses in 2017? Sell a business by year end or in 2018? If you normally itemize deductions, then carefully review to see if you need to accelerate expenses in 2017 as your 2018 itemized deduction may not exceed the new standard deduction. Discuss with your CPA. Estate planning for the very wealthy will be paramount since the new gifting exemptions will allow greater transfers of wealth. Most of us will NOT have to pay an estate tax so your planning can be more geared to your desires for the distributions to family members and asset protection. However remember that this increased exemption SUNSETS in 2025. If you made a Roth conversion you will NOT be able to re-characterize after December 31, 2017. Family law attorneys…pay close attention to the December 31, 2018 deadline on the deduction for alimony for the payor ex-spouse and the inclusion in income for alimony received by the payee ex-spouse.
WORD OF THE WEEK: House and Senate Conference Committee- The Constitution requires that both the House and Senate agree to the same legislative text before it is sent to the president for a signature. Thus, when the Senate and the House pass two different versions of a bill, like with the TCJA, the differences must be resolved, and then the consensus bill, or the conference report, must be passed by both chambers before it can go to the president for signature. Thus, a conference committee is a temporary, bicameral (House and Senate) committee established to resolve differences between two versions of a bill. During this process, Republican and Democratic members of the House and Senate (appointed by the majority leadership of both chambers) work through differences and then send a final product back to each chamber. Once the conference report comes back to the House and Senate for approval, it cannot be amended. It is an “up or down” vote—meaning take it or leave it—in each chamber.
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