(All individual tax changes expire on December 31, 2025)
(Final regulations to be issued by United States Treasury Department)
| Current Tax Law | New Tax Law | |||||||
| Personal tax rates |
|
Seven tax brackets: 10%, 12%, 22%, 24%, 32%, 35%, 37%;
35% bracket starts at $200,000 (single)/$400,000 (married) of taxable income and 37% bracket starts at $500,000 (single)/$600,000 (married) |
||||||
| Personal long-term capital gains and qualified dividend tax rate | Up to 23.8% | Unchanged | ||||||
| Passthrough income | Taxed at ordinary income tax rate up to 39.6% | Taxed at ordinary rate with a potential deduction equal to the lesser of 20% of qualifying business income or 50% of wages paid; deduction is limited for service-oriented business | ||||||
| Standard deduction | Married filing jointly: $12,700 Head of household: $9,350 Single: $6,350 |
Married filing jointly: $24,000 Head of household: $18,000 All others: $12,000 |
||||||
|
Personal exemption
|
$4,050 |
|
||||||
| Head of Household (HOH) filing status | Due diligence required to claim HOH status; $500 preparer penalty for noncompliance |
|
||||||
| Child tax credit |
|
|
||||||
| Personal state income tax, sales tax, and property tax | Allowable in full as itemized deductions |
|
| Current Tax Law | New Tax Law | |||
| Mortgage interest | Interest deductible on up to $1 million of mortgage debt (including second residence); home equity interest deductible on up to $100,000 loan balance |
|
||
| Medical expenses | Deductible to the extent they exceed 10% of AGI | Deductible to the extent they exceed 10% of AGI (7.5% of AGI for 2017 and 2018) | ||
| Miscellaneous itemized deductions (such as unreimbursed employee job expenses, tax preparation fees, investment expenses, gambling losses and hobby expenses) | Allowable as an itemized deductions if deductions exceed 2% of AGI | All 2% itemized deductions are eliminated | ||
|
Cash charitable contributions
|
Allowed up to 50% of AGI | Allowed up to 60% of AGI | ||
| Investment interest expense | Allowed as an itemized deduction up to amount of net investment income | Final bill was silent on this; deduction is presumed to still be allowed | ||
| Itemized deduction phaseout | Certain itemized deductions phased out for taxpayers with high income (Pease limitation) | Pease limitation repealed | ||
| Alternative Minimum Tax (AMT) | Supplemental tax imposed on taxpayers whose taxable income, adjusted by disallowing certain deductions, exceed certain exemption amounts | Unchanged, but limitations on state and local tax deductions in addition to higher exemption and phaseout amounts will subject fewer taxpayers to the AMT | ||
|
AMT exemption amounts
|
$54,300 single
$84,500 MFJ $42,250 MFS $24,100 trusts and estates |
$70,300 single
$109,400 MFJ $54,700 MFS $24,100 trusts/estates |
||
| AMT exemption phaseouts | AMT exemption reduced by 25% when Alternative Minimum Taxable Income (AMTI) exceeds:
$120,700 single $160,900 MFJ $80,450 MFS $75,000 trusts/estates |
AMT exemption reduced by 25% when AMTI exceeds: $500,000 single $1 million MFJ $500,000 MFS $75,000 trusts/estates
|
| Current Tax Law | New Tax Law | |||
| IRA recharacterizations | Individual allowed the recharacterize IRA contribution from regular IRA to Roth IRA or vice-versa before the due date of the 1040; both regular IRA contributions and Roth IRA conversions are allowed to be recharacterized | Roth conversions cannot be recharacterized | ||
| Alimony |
|
Not deductible to payor and not taxable to recipient for decrees executed or modified after 12/31/18 | ||
| Individual health insurance mandate | Individuals penalized for failure to carry minimum essential health insurance coverage | Repealed | ||
| Exclusion of gain on sale of principal residence | Can exclude up to $250,000/$500,000 of gain on sale of principal residence if used as principal residence for 2 out of the previous 5 years | Unchanged | ||
| 1031 exchanges | Allowed for almost any type of like-kind property used in a trade or business or held for investment purposes | Only allowed for real estate not held primarily for sale | ||
| Amounts paid for college athletic seating rights | Taxpayer may treat 80% of donation to college as charitable deduction even if they received tickets/seating rights in return | No charitable deduction allowed for any donation in which tickets or seating rights are received in return | ||
| 529 plans | Distributions may only be used for qualified higher-education expenses | Distributions allowed for tuition at elementary or secondary public, private or religious schools up to $10,000 | ||
| Income from equity grants | Income from equity grants transferred to an employee in connection with the performance of services is generally recognized when the stock vests | Employee may elect to defer income from stock options exercised or RSUs settled for up to five years |
| Current Tax Law | New Tax Law | |
| Estate tax, gift tax and generation skipping tax (GST) | Maximum tax rate of 40%; lifetime exemption of $5.49 million per individual; heirs receive stepped-up basis for inherited assets | Lifetime exemption increases to $11.2 million for 2018 and will increase for inflation each year until 2025; maximum tax rate remains at 40%; step-up in basis retained |
|
Annual gift tax exclusion
|
$14,000 | $15,000 |
KEY BUSINESS TAX CHANGES FOR 2018
| Current Tax Law | New Tax Law | |||||||
|
Maximum C-corporation tax rate
|
35% | 21% | ||||||
| Corporate AMT rate | 20% | Repealed after 2017; AMT credits refundable from 2018 through 2021 | ||||||
| Section 179 depreciation deduction | Up to $510,000 for new and used equipment purchases; deduction reduced when total equipment purchases in a single year exceed $2.03 million | Up to $1 million for new and used equipment purchases; deduction reduced when total equipment purchases in a single year exceed $2.5 million | ||||||
| Bonus depreciation | 50% expensing of the cost of new equipment and qualified assets | 100% expensing of the cost of new and usedequipment and qualified assets for assets purchased after 9/27/17 | ||||||
| Depreciation of real estate | Non-residential real estate depreciated over 39 years and residential real estate depreciated over 27.5 years | Unchanged | ||||||
| Net operating losses (NOL) |
|
Carryback repealed except for farms (two years); indefinite carryover deduction limited to 80% of pre-NOL income for losses generated after 2017 | ||||||
| Excess business loss | No provision | Net businesses losses in excess of $500,000 ($250,000 single) are disallowed in the current tax year and become a NOL carried over to the next year | ||||||
| Business interest paid or accrued |
|
Business interest deduction limited to 30% of adjusted taxable income; limitation determined at the entity level; excess deduction carried forward indefinitely; limitation does not apply to businesses with average three-year gross receipts < $25 million |
| Current Tax Law | New Tax Law | |||||
| Cash method of accounting |
|
Gross receipts threshold increased to $25 million of average three-year gross receipts | ||||
| Accounting for inventories | Businesses must generally use the accrual method if inventories are present, unless average three-year gross receipts are < $1 million | Businesses with less than $25 million of gross receipts are not required to account for inventories; inventories may be treated as non-incidental materials and supplies or accounted for in conformity with businesses’ financial accounting treatment of inventories | ||||
| Income recognition | Amount included in income (cash or accrual) is determined without regards to when it is included in income for financial accounting purposes | Taxpayer must recognize income no later than the tax year when it is recognized as income in an Applicable Financial Statement (AFS) or other financial statement specified by the IRS in § 451(b); does not apply to taxpayer that does not have a financial statement under
§ 451(b)(1)(B)(i) |
||||
| UNICAP rules – § 263A | Businesses with < $10 million of average three-year gross receipts do not have to add certain manufacturing costs to inventory or basis of certain property produced under
§ 263A |
Gross receipts threshold increased to $25 million; exceptions to § 263A not based on gross receipts are retained (i.e. R&E expenses, long-term contracts, etc.) | ||||
| Accounting for long-term contracts | Construction companies can opt out of the percentage-of -completion method (PCM) if average three-year gross receipts < $10 million | Taxpayers can opt out of PCM if the contact is expected to be completed in under two years AND average three-year gross receipts are < $25 million at the time the contact is entered into |
| Current Tax Law | New Tax Law | |
| Partnership technical termination | A partnership is technically terminated under § 708(b)(1)(B) if there is a sale or exchange of more than 50% of the total interest in partnership capital and profits within a 12-month period | 50% technical termination rule of § 708(b)(1)(B) is repealed; a partnership will still technically terminate if the partnership ceases to carry on any business activity § 708(b)(1) |
| Domestic production activities deduction (DPAD) | Domestic producers eligible for a deduction equal to the lesser of 9% of their qualifying income or 50% of wages paid | Repealed after 2017 |
| Meals and entertainment expenses | Deduction allowed for 50% of business-related meals and entertainment expenses | Deduction disallowed for entertainment expenses.
Beginning after 2025 disallows expenses associated with meals provided for convenience of employer |
| Electing Small Business Trust (ESBT) | Nonresident alien may not be a beneficiary of an ESBT | Nonresident alien restriction repealed |
| Carried interest | Carried interest to fund managers is taxed at capital gains rate |
3-year holding period required for long-term capital gain rate
|
| Intangible property | Self-created intangible assets (patents, designs, secret formulas, etc.) are taxable as capital gains when sold | Taxed as ordinary income. |
| Executive compensation | Publicly traded covered employee compensation limited to $1M per year, not including commissions, performance-based compensation, retirement plan contributions and excludable amounts from gross income. | Exceptions for commissions and performance-based compensation are repealed. Covered employees include CEO, CFO and the three highest paid officers. |
| Nonprofit executive compensation | No excise tax imposed on nonprofit executive compensation | 21% excise tax imposed on nonprofit executive compensation over $1 million |
| Research or experimentation expenses | Deduct currently capitalize and recover over the useful life of research but not less than 60 months or elect to recover over 10 years | R&E after 2021 must be capitalized and amortized ratably over a 5 year period. 15 years if conducted outside the US. |
| Sexual harassment claims subject to nondisclosure agreement | Generally deductible along with legal fees | Amounts incurred after 12/27/17 for claim on fees are not deductible |
| Rehabilitation credit | 20% credit for qualified rehabilitation expenditures for certified historic structure.
10% credit on pre – ‘36 buildings |
10% credit to pre – ’36 buildings is repealed.
20% credit can be claimed ratably over a 5 year period |
| New credit for employer paid family and medical leave | No credit | For years beginning after 12/31/2017, but not beginning after 12/31/19, allows businesses to claim a general business credit equal to 12.5% qualifying wages |
| Dividend-received deduction | If a corporation owns 20% of stock, an 80% DRD is allowed; otherwise 70% | 80% reduced to 65%
70% reduced to 50% |
| Exclusions from contributions of capital | Contributions of capital is not incurred in income | If property is acquired by a corporation and is not contributed by a shareholder as such the adjusted basis of the property is zero if cash must reduce the basis. |
Categories: Tax News
