The President signed the new tax bill into law. Troy R. Barnett from Barnett and Company, Inc. creates a summary of the new tax laws. Read on and find out the implications of this in our taxes.
There will be a slight adjustment to all tax rates. The top tier will reduce from 39.6% to 37% and this will start for joint taxpayers at $600,000 and $500,000 on single returns.
The top C-Corporate rate will be reduced from 35% to 21% starting in 2018.
Expensing of Asset Purchases
Businesses can take 100% bonus depreciation on fixed asset purchases made on or after September 27, 2017. Used property now qualifies for this deduction, as opposed to only new property per the old tax code.
Individuals that receive income from pass-through entities (i.e. S Corporations, Partnerships, LLCs) or sole proprietorships may be eligible for a 20% deduction on this income. This deduction is limited to the greater of (a) 50% of wage expense from the business or (b) 25% of the wage expense plus 2.5% of the total cost of depreciable assets. Additionally, personal service businesses are not eligible for this deduction (i.e. accountants, doctors, attorneys, dentists) unless taxable income is below certain thresholds ($315,000 for joint filers).
Business Loss Limits
The new code puts a limitation on business losses of up to $500,000 per year. All unused amounts will be carried forward as a net operating loss.
The corporate AMT is removed, but the individual AMT remains the same with a slight
adjustment to the income threshold.
Net Operating Losses
Carrybacks of losses are no longer allowed and beginning in 2018, net operating losses can only offset 80% of current-year income.
Estate & Gift Taxes
The lifetime exclusion for estate and gift taxes increased from $5M per person to $10M per person. The estate tax rate of 40% remains the same.
Business Interest Deductions
Interest deductions are limited to businesses with more than 25M of gross receipts before interest, depreciation and amortization. Real Estate businesses may elect to avoid this rule if an alternative depreciation method is used by choosing to depreciated non-residential property over 40 years and residential property over 30 years.
After 2017 these are limited to real property.
State Tax Deduction
Beginning in 2018, individuals are limited to a $10,000 deduction for state taxes, property taxes and sales taxes. You may choose to pre-pay your 2017 state income tax and second installment of your property taxes before December 31, 2017.
The limitation on charitable deductions increased from 50% of adjusted gross income to 60% of adjusted gross income.
Home Mortgage Interest
The home mortgage interest deduction is limited to $750,000 of acquisition debt starting in 2018, but does not apply to acquisition debt that occurred prior to December 15, 2017. Anything prior to this date is still eligible for the $1,000,000 limitation.
The limitation for medical expenses decreases from 10% of adjusted gross income back down to 7.5% of adjusted gross income.
Principle Residence Gain
These rules did not change.
Miscellaneous Itemized Deductions
These deductions are no longer allowed beginning in 2018.