The Tax Cuts and Jobs Act is arguably the most significant change to the Internal Revenue
Code in decades, the law reduces tax rates for individuals and corporations and repeals many
deductions, thus simplifying filing for many taxpayers. Most of the individual changes will expire
at the end of 2025, meaning the old tax code rates and deductions will return in 2026 unless
Congress passes another law before then. Following are the most notable changes taking effect
after December 31, 2017:
Tax Brackets and Tax Rates
There are seven tax rates: 10%, 12%, 22%, 24%, 32%, 35% and 37%.
Alternative Minimum Tax:
The phaseout thresholds are increased to $1,000,000 for married taxpayers filing a joint return,
and $500,000 for all other taxpayers (other than estates and trusts). These amounts are
indexed for inflation.
Estate Tax Exemption
The estate and gift tax exemption is doubled for estates of decedents dying and gifts made after December 31, 2017, and before January 1, 2026. This is accomplished by increasing the basic exclusion amount provided in §2010(c)(3), and indexed for inflation. The exemption increases to $11,200,000 in 2018.
The generation skipping transfer (GST) tax exemption is also doubled.
Married filing jointly $24,000
Head of Household $18,000
Married filing separately $12,000
Additional amount if over age 65, blind or disabled
$1,600 – Unmarried individuals
$1,300 – Each spouse meeting criterion.
Personal Exemptions. The personal exemption is repealed.
The kiddie tax applies to unearned income for children under the age of 19 and college students
under the age of 24. Unearned income is income from sources other than wages. Taxable
income attributable to net unearned income will be taxed according to the brackets applicable to
trusts and estates. The rules for tax applicable to earned income are unchanged.
Child Tax Credit.
The child tax credit will increase to $2,000 per qualifying child and will be refundable up to
$1,400, subject to phaseouts. To receive the refundable portion of the child tax credit, a
taxpayer must include a social security number for each qualifying child claimed on the tax
Also included is a temporary $500 nonrefundable credit for other qualifying dependents who are
not qualifying children.
Phaseouts, which are not indexed for inflation, will begin with adjusted gross income of more
than $400,000 for married taxpayers filing jointly and more than $200,000 for all other
Student Loan Interest Deduction.
For 2018, the maximum amount that you can deduct for interest paid on student loans remains
at $2,500. Phaseouts apply for taxpayers with modified adjusted gross income (MAGI) in excess
of $65,000 ($135,000 for joint returns) and is completely phased out for taxpayers with modified
adjusted gross income (MAGI) of $80,000 or more ($165,000 or more for joint returns).
For graduate students who teach, or the children of university employees, the deferred tuition
provided would not be taxable.
There are no changes to the current law regarding the American Opportunity Credit or the
Lifetime Learning Credit.
Section 529 Plans
Distributions of up to $10,000 per beneficiary can be used for tuition expenses for public, private
or religious elementary or secondary school. The limitation applies on a per student basis rather
a per account basis.
Rollovers from a 529 plan to an ABLE account are allowed without penalty provided the ABLE
account is owned by the same designated beneficiary of the 529 plan or a member of the
designated beneficiary’s family. Rolled-over amounts count towards the overall annual limitation
on contributions to the ABLE account
Discharged of Student Loan Indebtedness.
The exclusion from income resulting from the discharge of student loan debt is expanded to
include discharges resulting from death or disability of the student.
With the exception of state and local income taxes, mortgage interest, medical expenses,
disaster losses, charitable contributions and other deductions not subject to the 2% floor, all
other itemized deductions are repealed. The overall limitation on itemized deductions for upperincome
individuals is also repealed.
State and Local Taxes.
Taxpayers can claim a deduction for a combination of state and local income tax, sales tax, or
real property tax. The aggregate deduction is capped at $10,000. Foreign real property taxes
are no longer deductible.
Under this provision, an individual may not claim an itemized deduction in 2017 on a prepayment
of income tax for a future taxable year in order to avoid the dollar limitation applicable
for taxable years beginning after 2017.
For 2017 through 2018, expenses exceeding 7.5% of income are deductible; that percentage
increases to 10% in 2019. Under this provision, these thresholds also apply for determining
Taxpayers who are able to itemize deductions can include charitable contributions. The current
limitation of 50% of income is increased to 60%.
The standard mileage rate with regard to the use of a taxpayer’s automobile for charitable
purposes is indexed for inflation in taxable years beginning after December 31, 2017.
The deduction for mortgage interest is capped at $750,000 of debt. The interest deduction is
allowed on a first or second home. The interest on home equity loans will no longer be
deductible. Interest on up to $1 million of acquisition debt for loans prior to December 15, 2017
Bicycle Commuting Reimbursement. The exclusion from gross income and wages for qualified bicycle commuting reimbursements up to $20 is suspended.
Moving Expense Reimbursements.. The exclusion from gross income and wages for qualified moving expense reimbursements is repealed except in the case of a member of the Armed Forces of the United States on active duty who moves pursuant to a military order.
Alimony Beginning with new divorces in 2019, alimony payments to an ex-spouse are no longer deductible and not taxable to the recipient.
Affordable Care Act The penalty for failing to maintain minimum essential coverage for individuals (individual mandate) is repealed beginning in 2019. The tax on net investment income (NIIT) remains.
IRA Recharacterizations. The special rule allowing a contribution to one type of IRA to be recharacterized as a contribution to the other type of IRA no longer applies to a conversion contribution to a Roth IRA. Thus, recharacterization cannot be used to unwind a Roth conversion. However, recharacterization is still permitted with respect to other contributions. For example, an
individual may make a contribution for a year to a Roth IRA and, before the due date for the
individual’s income tax return for that year, recharacterize it as a contribution to a traditional
IRA. In addition, an individual may still make a contribution to a traditional IRA and convert the
traditional IRA to a Roth IRA, but the provision precludes the individual from later unwinding the
conversion through a recharacterization.
Corporations and Businesses
The tax rate for corporations is reduced to 21% beginning January 1, 2018 and is made
Dividends Received Deduction. The 80% and 70% dividends received deductions under current law are reduced to 65% and 50%, respectively.
Alternative Minimum Tax. Effective for tax years beginning after 2017, corporations are no longer subject to AMT. In the case of a corporation, the bill allows the AMT credit to offset the regular tax liability for any taxable year. In addition, the AMT credit is refundable for any taxable year beginning after 2017 and before 2022 in an amount equal to 50% (100% in the case of taxable years beginning in 2021) of the excess of the minimum tax credit for the taxable year over the amount of the credit allowable for the year against regular tax liability.
Non-corporate taxpayers, including trusts or estates, who have domestic qualified business
income (QBI) from a partnership, S corporation, or sole proprietorship are allowed to deduct
20% of business-related income, subject to certain wage limits and exceptions. The remaining
income is subject to normal individual rates.
The 20% deduction is not allowed in computing adjusted gross income (AGI), but rather is allowed as a deduction reducing taxable income. It does not reduce income subject to SE tax. The deduction is also not allowed for businesses offering certain personal services.
The deduction ratably phases out for joint filers with income between $315,000 and $415,000
and between $157,500 and $207,500 for others.
This provision provides an alternate limitation based on wages and capital. The limitation is the
greater of 50% of the wages paid or 25% of the wages paid plus 2.5% of the unadjusted basis
of the business’ capital assets.
Section 179 Expensing
The maximum amount a taxpayer may expense under §179 increases to $1,000,000. The
phase-out threshold amount increases to $2,500,000. The $1,000,000 and $2,500,000
amounts, as well as the $25,000 sport utility vehicle limitation, are indexed for inflation for
taxable years beginning after 2018.
The definition of §179 property is expanded to include certain depreciable tangible personal
property used predominantly to furnish lodging or in connection with furnishing lodging, such as
furniture and appliances.
The definition of qualified real property eligible for §179 expensing now includes any of the
following improvements to nonresidential real property placed in service after the date such
property was first placed in service:
• Heating, ventilation, and air-conditioning property
• Fire protection and alarm systems
• Security systems
Computers and peripheral equipment are removed from the definition of listed property.
No deduction is allowed with respect to (1) an activity generally considered to be entertainment,
amusement or recreation, (2) membership dues with respect to any club organized for business,
pleasure, recreation or other social purposes, or (3) a facility or portion thereof used in
connection with any of the above items.
In addition, the provision disallows a deduction for expenses associated with providing a
qualified transportation fringe to employees of the taxpayer, and except as necessary for
ensuring the safety of an employee, any expense incurred for providing transportation (or any
payment or reimbursement) for commuting between the employee’s residence and place of
Taxpayers may still generally deduct 50 percent of the food and beverage expenses associated
with operating their trade or business (e.g., meals consumed by employees on work travel). For
amounts incurred and paid after December 31, 2017 and until December 31, 2025, the provision
expands this 50 percent limitation to expenses of the employer associated with providing food
and beverages to employees through an eating facility that meets requirements for de minimis
fringes and for the convenience of the employer.