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Tax Reform 2018

What's in the New Tax Bill - many of these changes are temporary and set to expire Dec 31, 2025

 

  • The current 7 brackets of 10%, 15%, 25%, 28%, 33%, 35%, and 39.6% are replaced with the new 7 brackets of 10%, 12%, 22%, 24%, 32%, 35%, and 37%.

 

  • The income tax brackets will be adjusted for inflation after December 31, 2018, and will be rounded to the next lowest multiple of $100 in future years.

 

  • Capital gains and qualified dividend rates remain generally unchanged.

 

  • Increase in individual AMT exception and phaseout amounts

 

  • Personal exemption deductions are eliminated however standard deductions are increased to $12,000 for single and MFS filers, $24,000 for joint filers, and $18,000 for heads of household.

 

  • Child tax credit is increased to $2,000 for each child, and up to $1,400 of that is refundable. 

 

  • Repeal of overall itemized deduction limitation

 

  • The deduction for state and local income taxes including property and sales taxes is limited to $10,000

 

  • Mortgage interest is deductible on loan up to $750,000, including primary home and one other "qualified residence" such as a mobile home or a boat.

 

  • Home equity loan interest deduction is eliminated.

 

  • Miscellaneous itemized deductions subject to 2% of AGI floor is eliminated. That includes investment fees, unreimbursed business expenses, tax preparation fees, etc.

 

  • The floor for the medical expense deduction is reduced from 10% to 7.5%.

 

  • Modification to deduction for charitable contributions: the income based limitation will be increased from 50% to 60%. It also repeals the charitable deduction for payments made in exchange for collegiate athletic seating rights

 

  • Casualty and theft losses are deductible only if officially declared to be a disaster by the President under the Disaster Relief and Emergency Assistance act.

 

  • Repeal of deduction for moving expenses except for armed forces members

 

  • Repeal of deduction for employee achievement awards

 

  • Individual AMT exemption and phase-out threshold amounts are increased.

 

  • Repeal of the deduction for alimony paid and the corresponding inclusion of alimony income for any divorce or separation executed after Dec 31, 2018

 

  • Individual shared responsibility payment (health insurance penalty) is permanatly reduced to zero.

 

  • Individuals can deduct 20% of qualified business income from pass-through business entities including partnerships, S corporations, and sole proprietorships. The deduction begins to phase out when an joint filers’ income reaches $315,000 or any other taxpayers income reaches $157,500. This deduction is also limited to 50% of W-2 wages.

 

  • Net operating losses are now limited to 80% of taxable income

 

  • The corporate income tax rate is reduced to 21% and corporate AMT is eliminated.

 

  • The domestic production activities deduction is eliminated

 

  • Bonus depreciation is increased from 50% to 100% for qualified property placed in service before January 1, 2023.

 

  • Section 179 expensing limits are permanently increased from $500,000 to $1,000,000 and the phase-out threshold limit is increased to $2,500,000.

 

  • There will be an increased estate and gift tax exception

 

  • The tax rates for estates and trusts will be as follows:
    • 10% for taxable income under $2,550
    • 24% on the excess income over $2,550 but under $9,150
    • 35% on the excess income over $9,150 but under $12,500
    • 37% will be applied to any income over $12,500

 

  • Simplification of "Kiddie Tax": earned income will be tax at the tax rate applicable to that of an unmarried taxpayer, whereas unearned income will be tax according to brackets applicable to that of trusts and estates

 

  • A Roth IRA cannot be recharacterized into a traditional IRA once it has been converted to an Roth IRA from a traditional IRA

 

  • The student loan discharge exclusion now applies to both death as well as total and permanent disability

 

  • The time limit to contest IRS levy is now 2 years instead of 9 months