Tax Cuts and Jobs Act of 2017
By Andrew H. Hook, CELA, CFP
Individual Taxes & Rates
New Income tax rates & brackets:
- For tax years beginning after Dec. 31, 2017 and before Jan. 1, 2026, seven tax rates apply for individuals: 10%, 12%, 22%, 24%, 32%, 35%, and 37%.
- The TCJA also provides four tax rates for estates and trusts: 10%, 24%, 35%, and 37%.
Standard deduction increased:
- For tax years beginning after Dec. 31, 2017 and before Jan. 1, 2026, the standard deduction is increased to $24,000 for married individuals filing a joint return, $18,000 for head-of-household filers, and $12,000 for all other taxpayers, adjusted for inflation in tax years beginning after 2018.
AMT retained, with higher exemption amounts:
- For tax years beginning after Dec. 31, 2017 and before Jan. 1, 2026, the TCJA increases the Alternative Minimum Tax Exemption (“AMT exemption”) and phases out amounts for individuals.
- Beginning in 2018, the AMT exemption amounts are:
- $109,400 for married individuals filing jointly or surviving spouses;
- $70,300 for single or head of household filers; and
- $54,700 for married individuals filing separately (i.e., 50 percent of the amount for married individuals filing jointly).
- The AMT exemption amounts will phase out for taxpayers at $500,000 for single individuals and $1 Million for married couples.
Personal Deductions, Exclusions & Credits
State and Local Tax Deduction: For tax years beginning after Dec. 31, 2017 and before January 1, 2026, an individual taxpayer may claim an itemized deduction of up to $10,000 ($5,000 for a married taxpayer filing a separate return) for the aggregate of (i) State and local property taxes; and (ii) State and local income paid or accrued in the tax year. To avoid this limitation, an individual may not claim an itemized deduction in 2017 on a pre-payment of income tax for a future tax year.
- For 2017, the personal exemption amount is $4,050.
- The TCJA provides that, for tax years beginning after Dec. 31, 2017, and before Jan. 1, 2026, the exemption amount is zero.
Mortgage and home equity indebtedness interest deduction:
- For tax years beginning after Dec. 31, 2017 and before Jan. 1, 2026, the deduction for interest on home mortgage indebtedness is temporarily limited to interest on acquisition debt. The deduction for acquisition mortgage interest is limited to underlying indebtedness of up to $750,000 ($375,000 for married taxpayers filing separately). The new lower limit doesn’t apply to any acquisition indebtedness incurred before Dec. 15, 2017.
- The deduction for interest on acquisition mortgage indebtedness applies to debt incurred in acquiring, constructing, or substantially improving a qualified residence and which is secured by the residence.
- A qualified residence for this purpose includes the taxpayer’s principal residence and one other residence such as a vacation home that is not rented out at any time during the tax year or that is used by the taxpayer for a minimum number of days. A qualified residence can be a house, condominium, cooperative, mobile home, house trailer, or boat.
- Additionally, beginning Jan. 1, 2018, taxpayers may not claim a deduction for existing and new interest on home equity debt.
Medical expense deduction:
- For tax years beginning after Dec. 31, 2016 and ending before Jan. 1, 2019, the threshold on medical expense deductions is reduced to 7.5% for all taxpayers.
Alimony deduction by payer and inclusion by payee suspended: For any divorce or separation agreement executed after Dec. 31, 2018, or executed before that date but modified thereafter (if such modification expressly provides that the new amendments apply), alimony and separate maintenance payments are not deductible by the spouse making the payment and are not included in the income of the payee spouse. Income used for the payment of alimony is taxed at the rates applicable to the spouse making the payment.
Charitable Deduction: The TCJA increases the contribution-base percentage limit for tax years beginning after Dec. 31, 2017, and before Jan. 1, 2026, for deductions of cash contributions by individuals to 50% charities from 50% to 60% (the “60% limit”). Other TCJA provisions reduce charitable giving incentives.
Miscellaneous itemized deductions suspended: For tax years beginning after Dec. 31, 2017 and before Jan. 1, 2026, the deduction for miscellaneous itemized deductions that are subject to the 2% floor is suspended. Therefore, the following expenses may not be deducted:
- unreimbursed employee business expenses(including expenses for travel, lodging, meals, entertainment, continuing education, subscriptions to professional journals, union or professional dues, professional uniforms, job hunting, and business use of an employee’s home);
- Investment expenses (including investment advisory fees, subscriptions to investment advisory publications, certain attorneys’ fees, and safety deposit box rental); and
- tax determination expenses (including tax return preparation fees)
Limitation on itemized deductions suspended: Under prior law, an individual whose adjusted gross income exceeds an applicable threshold amount (for example in 2017, $266,700 for single taxpayers and $313,800 for joint filers) must reduce the total of his itemized deductions. For tax years beginning after Dec. 31, 2017 and before Jan. 1, 2026, this reduction of itemized deductions is suspended.
Affordable Care Act
Individual Mandate: For months beginning after Dec. 31, 2018, the amount of the individual shared responsibility payment is reduced to zero.
- The net result of these changes is that no shared responsibility payment will be required after 2018, nor will there be any penalty imposed for failing to maintain minimum essential coverage.
- This revision will likely reduce the number of healthy people seeking coverage beginning in 2019, therefore increasing premiums.
Net Investment Tax and Additional Medicare Tax: The TCJA leaves intact the 3.8% net investment income tax and the 0.9% additional Medicare tax, both enacted by the Affordable Care Act.
Estate & Gift Tax Retained with Increased Exemption
Estate & Gift Taxes:
- For estates of decedents dying and gifts made after Dec. 31, 2017 and before Jan. 1, 2026, the TCJA doubles the base estate and gift tax exemption amount from $5 million to $10 million. The $10 million amount is indexed for inflation occurring after 2011 and is expected to be approximately $11.2 million in 2018 ($22.4 million per married couple).
- In addition to the increase in the basic exclusion amount, the TCJA modifies the computation of gift tax payable and estate tax payable in cases where gifts have been made in prior years. With respect to the computation of gift tax payable, the tax rates in effect at the time of the decedent’s death are to be used rather than the rates that were in effect at the time the gifts were made
These are just a few of the changes made in the newest tax bill. For more detail, please see the Hook Law Center Memorandum on our website at Tax Cuts 2017.
Ask Kit Kat – Golden Retrievers Lead
Hook Law Center: Kit Kat, what can you tell us about golden retrievers and how that breed of dog may lead researchers to new information about all dogs?
Kit Kat: Well, this is an interesting situation. Since 2012, there has been a longitudinal study of more than 3,000 golden retrievers from across the United States to learn more about the causes of cancer. Golden retrievers were chosen because cancer prevalence is slightly higher in the breed. Also, since they are the third most popular breed, it was easier to find subjects to participate. The study which is called the Golden Retriever Lifetime Study is a $32 million research project undertaken by Colorado State University and the Morris Animal Foundation. All the dogs in the study were enrolled before age 2, and they will be followed for the rest of their lives. Researchers hope to learn whether golden retrievers really are more prone to cancer, or whether there is more cancer in the breed just because there are more of them.
It is the first and largest longitudinal study of pets. Goldens lead their lives among humans, doing many of the same activities they do. According to Rodney Page, a veterinary oncologist at Colorado State, “They basically reflect a lot of the same exposures and activities that we have.” For example, preliminary data from the study reveals that 1 in 5 goldens sleep with their owners, 40 percent swim at least once a week, and 22 percent drink or eat from a plastic bowl. Researchers hope there may be implications for humans and the treatment of their cancers. After all, goldens who do have cancer at present, are treated with the same drugs that humans are. Stay tuned as we learn more about goldens, cancer, and what treatments are the most effective. (Karin Bruillard, “How 3,000 very good golden retrievers could help all dogs live longer,” The Washington Post, December 14, 2017)
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