Summary of the Tax Cuts and Jobs Act

November 7, 2017  |  Volume 15, Issue 1  |  800.756.2772

Summary of the Tax Cuts and Jobs Act

On November 2, 2017 the House Ways and Means Committee released H.R. 1: “The Tax Cuts and Jobs Act.”  While the proposed changes as outlined below are not yet tax law; changes are likely to come during the next few weeks as committee mark-ups and the Senate releases its own version.  We expect that the legislation process will be moving very quickly and a comprehensive change in tax law could be on the President’s desk by Christmas. 

A summary of major changes affecting individual taxpayers and families:

  • Current individual tax rates would consolidate from seven brackets to four brackets: 12%, 25%, 35%, and 39.6%, effective for the 2018 tax year. The 25% bracket would be in effect for single taxpayers at $45,000 and married filing jointly at $90,000.  The 35% bracket would be in effect at $200,000 for single taxpayers and $260,000 for married filing jointly.  The 39.6% bracket would be in effect for single taxpayers at $500,000 and $1,000,0000 for married filing jointly.
  • The standard deduction increases to $12,200 for single individuals and $24,400 for married filing jointly.
  • Under current law, taxpayers, spouses, and dependents are allowed a personal exemption of $4,050 each.  Under the proposed law, personal exemptions would be eliminated.
  • Repeal of the following itemized deductions: (1) medical expenses, (2) state and local taxes, excluding property taxes, (3) personal casualty and theft losses, (3) tax preparation fees, and (4) employee business expenses.
  • Modification of the following itemized deductions: (1) charitable contribution AGI limit for individual taxpayer raises from 50% to 60%, (2) mortgage interest deduction on second or vacation home is eliminated, (3) mortgage interest deduction is allowed to the extent of $500,000 of principal acquisition indebtedness (mortgage debt incurred prior to November 2, 2017 is grandfathered in under the old rules), (4) home equity indebtedness is no longer deductible, and (5) property tax deduction is limited to $10,000.
  • Repeals the deduction for moving expenses and alimony/separate maintenance payments.
  • Child tax credit would increase from $1,000 to $1,600, with the first $1,000 of credit refundable.
  • Individual alternative minimum tax or AMT is repealed.
  • Excludes alimony and separate maintenance payments from taxable income.
  • Increases the estate and gift per person tax exemption to $10,000,000, effective for tax years beginning after December 31, 2017.  The estate and generation-skipping transfer tax is repealed for decedent’s dying after December 31, 2023. 

Summary of major changes affecting business taxpayers:

  • Flat 20% corporate income tax rate would apply to all C corporations and 25% for personal services corporations.
  • Corporate alternative minimum tax or AMT is repealed.
  • The proposed law provides for a tax rate on individuals of no more than 25% on their qualified business income.  Qualified business income is passive income and a capital percentage of active business income derived from partnerships, S corporations, and sole proprietorships.
  • Increases bonus depreciation from 50% to 100% for qualified property acquired and placed in service from September 28, 2017 until December 31, 2022. 
  • Expensing limitations under Section 179 would be extended to $5,000,000 and would phase-out at $20,000,000 of income.
  • Business interest expense would be deductible to the extent of net business interest income plus 30% of the “adjusted taxable income” of the taxpayer for the taxable year. Adjusted taxable income means taxable income before interest, taxes, depreciation, and amortization.  Any interest deduction limited under these rules can be carried forward for up to five years.
  • Net operating loss carrybacks would generally be eliminated, and carryforward of net operating losses would be indefinite.
  • Corporate alternative minimum tax or AMT is repealed.
  • Elimination of Section 199 manufacturing deduction and deduction for entertainment expenses.
  • Repeals and or modifies most business credits.