Congress has just passed the most sweeping changes to the U.S. tax code in decades. Here are some of the more important provisions within the bill, and the likely effect on your taxes.

  • New individual tax rates:

The bill sets seven individual brackets at 10%, 12%, 22%, 24%, 32%, 35% and 37%. The new 37% top rate would apply to taxable income in excess of $500,000 for single filers and $600,000 for joint filers.

  • Increased standard deduction:

The standard deduction would nearly double, to $12,000 for single filers and $24,000 for joint filers.

  • State and local tax deduction:

Taxpayers would be allowed to deduct up to $10,000 in a combination of property tax and income tax (or sales tax).

  • Mortgage interest deduction:

Individuals would be allowed to deduct interest paid on new mortgages (issued after Jan. 1, 2018) of up to $750,000. That’s down from the current cap of $1 million. The deduction would also apply to second homes, but not for home equity lines of credit.

  • Preserves deduction for medical expenses:

Medical expenses above 7.5% of adjusted gross income would be deductible in 2017 and 2018. Beginning in 2019, that would rise to 10%.

  • Increased child tax credit: 

The per-child tax credit would double from $1,000 to $2,000.

  • Expansion of 529 college savings accounts:

Up to $10,000 per year of money in a 529 college savings plan can be used to pay for K-12 school tuition. This could impact savings for college as taxpayers take advantage of it for private schools at the K-12 level.

  • Increased exemption for Alternative Minimum Tax (AMT):

The AMT would be retained for individuals, but the exemption and phase-out amounts have sharply increased.

  • Increased Charitable Contribution Limit:

The contribution limit increases to 60 percent of adjusted gross income for the amount of cash that can be deducted annually as charitable contributions to public charities, including colleges and universities. Also, donors may no longer deduct 80 percent of the amount paid for the right to purchase tickets for college athletic events.

  • Estate tax exemption doubled:

Estates of up to $11 million (or $22 million for couples) would be exempt from taxation.

  • Repeal of the individual mandate:

The bill repeals, beginning in 2019, the requirement set by the Affordable Care Act that individuals purchase health insurance or pay a penalty.

  • Numerous other deductions and tax credits repealed:

The bill repeals deductions for tax preparation, moving expenses, alimony payments, employee work-related education, among others.

  • Expiration of most individual tax provisions:

Virtually all of the provisions that apply to individuals are set to expire at the end of 2025. A future Congress would have to vote to extend them, otherwise they would revert to 2017 levels.

  • No major changes to retirement savings accounts:

Contribution limits to IRAs, Roth IRAs, 401(k)s and other retirement plans were not changed.

  • No changes to capital gains and dividends:

Capital gains and qualified dividends would continue to be taxed at the current 0%, 15% and 20% rates, depending on income. Wealthier filers would continue to pay an additional 3.8% tax on investment income, known as the Net Investment Income Tax.

  • No changes to cost-basis rules:

Taxpayers will continue to have the ability to choose which lots of stock they are selling when calculating their cost-basis.

  • Reduction in the corporate tax rate:

Corporations would be taxed at 21% beginning in 2018, down from today’s top corporate rate of 35%.

  • Reduction in taxes for “pass-through” businesses:

Most pass-through businesses, such as S corporations, limited liability companies, partnerships and sole proprietorships, including those owned by trusts, would be allowed to deduct 20% of their qualified business income. There are special rules for certain types of service businesses and limitations. This provision is extremely complicated.


End of Newsletter – Dec 21, 2017

Questions? Contact our New York office for more information.

Any accounting, business, or tax advice contained in this page is not intended as a thorough, in-depth analysis of specific issues, nor a substitute for a formal opinion, nor is it sufficient to avoid tax-related penalties. If desired, we would be pleased to perform the requisite research and provide you with a detailed written analysis. Such an engagement may be the subject of a separate engagement letter that would define the scope and limits of the desired consultation services.