Tax Cuts and Jobs Act (TCJA) Highlights

The TCJA was signed into law at the end of 2017. The IRS has been working throughout 2018 on this major piece of tax legislation, issuing proposed regulations, notices, memos, FAQs and more to help businesses make sense of all the changes.  The following are some highlights of the new tax law that may affect your 2018 tax return. 

Individuals
How will tax reform impact individual taxpayers?
Here are some highlights of the changes for individual taxpayers (from 2018 through 2025): 

·        The top individual rate is 37%.

·        The individual AMT remains, but with increased exemption amounts and increased phase-out levels.

·        The mortgage interest deduction limit is reduced to $750,000 on new mortgages ($375,000 for a married couple filing a separate return) and only home equity loan interest on loans used for home improvements or traced to business, investment or passive activity expenditures remains deductible (see Sec. 163(h), Regs. Sec. 1.163-8T and Notice 89-35).

·        Individuals are allowed to deduct up to $10,000 in total state and local taxes, which include income or sales taxes plus property taxes. For state and local taxes previously deducted on Schedule C, E, or F, the limit does not apply.

·        The child tax credit is increased to $2,000, with up to $1,400 refundable. The phase-out level is increased so more individuals with children under age 17 will qualify for the credit.

·        Medical expenses in excess of 7.5% of adjusted gross income (AGI) are deductible in 2017 and 2018 and then 10% of AGI thereafter.

·        There are no personal or dependent exemptions under the new tax law.

·        No moving expenses are deductible (other than for U.S. armed forces members on active duty).

·        No alimony is taxable or deductible starting in 2019 for agreements executed after 2018.

·        No miscellaneous itemized deductions.

·        No Pease phase-out of itemized deductions.

 Corporations

How will tax reform impact business taxpayers?
Here are some highlights of the changes for businesses:

·        The new corporate tax rate is a flat 21%.

·        The corporate alternative minimum tax (AMT) is repealed.

·        The deduction for business interest is limited to the sum of the following: business interest income, 30% of the adjusted taxable income (as defined in the new law), and the floor plan financing interest.

·        The rules allow taxpayers to claim a 100% first-year depreciation deduction on qualified property that is acquired and placed in service after Sept. 27, 2017. A phase-out period will begin in 2023 and end in 2027.

·        The rules disallow entertainment, leisure, amusement or recreation expenses.

·        The rules repeal the carry back of net operating losses (NOLs) for years ending after 2017 and NOLs generated for years beginning after 2017 cannot reduce taxable income by more than 80%.

Please contact my office today at 248-514-6213 for additional information.

Andrew Jordan, CPA

The information provided is not intended as a substitute for legal or other professional services. Legal or other expert assistance should be sought before making any decision that may affect your situation.