The Tax Cuts & Jobs Act: What You Need to Know
December 22, 2017

Congress has finally passed a major tax revision law, the Tax Cuts and Jobs Act. This new law will reduce taxes significantly for those filing jointly with taxable income less than $77,400 and above $165,000.

The purpose of this newsletter is to expand on our last newsletter, and provide you with additional changes for next year.

Individual Taxation

Changes to Your Individual Tax Return
  
New Tax Rates & Brackets

These new rates are effective for tax years beginning after December 31, 2017 and before January 1, 2026.

Grouping Itemized Deductions

Individual tax planning will now include grouping itemized deductions in every other year for many taxpayers. What is grouping? Prepaying itemized deduction items in one year and taking the standard deduction in the next, alternating from year-to-year in order to obtain the maximum deduction in each year.

Mortgage & Home Equity Indebtedness Interest Deduction

Under the new law, the deduction for mortgage interest is limited to underlying indebtedness of up to $750,000 (for mortgages instated after December 15, 2017) through 2025. The deduction for home equity (HELOC) indebtedness will also be suspended through 2025.

Child Tax Credit

Under the new law, the child tax credit has been modified as follows, through 2025.

  • Credit increased to $2,000 per qualifying child ($1,400refundable per qualifying child).
  • Provision added to provide a $500 nonrefundable credit for qualifying dependents other than qualifying children.
  • Adjusted gross income phase-out amount increased to $400,000 (MFJ) or $200,000 (others).

Personal Exemptions

There will no longer be personal exemptions deducted from adjusted gross income on page 2 of the Form 1040.

Personal Residence Gain Exclusion

Good news! The personal residence gain exclusion has not been modified. Taxpayers selling their principal residence can still exclude gain up to $500,000 (MFJ) or $250,000 (others) if they have lived in the residence for 2 of the last 5 years.

Link to Calculator

Below is a link to a tax liability calculator that we found interesting: Click Here

Business Taxation

Changes to Your Business Tax Return

Business Income

The new law considerably complicates the taxation of business income for owners of such entities. However, there will be a large benefit for small business owners. If you are an owner of a business classified as a sole proprietorship, S-corporation, partnership, LLC, Schedule E for rentals, or Schedule F for farming, please contact us to determine the planning needed to handle the new 20% deduction and its nuances.

Increased §179 Expensing

The new law increases the annual maximum §179 expense from $500,000 to $1 million.

Qualified Real Property

Effective for tax years beginning after December 31, 2017 qualified real property eligible for §179 expensing is expanded to include the following improvements:

  • Roofs
  • Heating Systems
  • Ventilation Systems
  • Air-Conditioning Property
  • Fire Protection and Alarm Systems
  • Security Systems

Bonus Depreciation

For property placed in service after September 27, 2017 and before January 1, 2023, the new law will allow 100% bonus depreciation for new and used property.

Like-Kind Exchanges

Currently, like-kind exchanges can be applied to property ranging from real estate to tangible personal property held for business use, to property held for investment purposes. Thenew law will only allow like-kind exchanges for real property. Personal property no longer qualifies - that means no autos.

Entertainment Expenses

Under the new law, entertainment expenses are no longer allowed as a deduction for amounts paid after December 31, 2017. The 50% meals deduction is still allowed.

If you have any questions or concerns regarding the new tax law, please contact us at your convenience and we will assist in any way possible.  

We hope you and yours have a happy holiday season!

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