House and Senate Approve Tax Cuts and Jobs Act

December 20, 2017

After months of political wrangling, Congress has approved a tax reform bill that has been sent to President Trump to sign into law. The sweeping bill includes changes that affect corporations and individuals. As the House and Senate have been working, there have been many news reports and rumors in recent weeks regarding different provisions. As a result, Emerant Wealth is providing a high-level summary of some of the most important provisions that may impact our individual clients. Though this list is not exhaustive, it includes some key items of interest:

  • Individual Tax Rates – Lowered to 0%, 10%, 12%, 22%, 24%, 32%, 35%, and 37%.
  • Trust and Estate Tax Rates – Lowered to 10%, 24%, 35%, and 37%.
  • Capital Gains Tax Rates – Remain the same.
  • Estate (Death) Tax – Doubles the amount of the current exemption ($5.49 million per individual in 2017); portability remains intact.
  • State and Local (Including Property) Tax Deduction This will be limited to $10,000, though it is currently unlimited. For clients in Alabama, the Alabama Accountability Act provides a means to re-characterize your limited state tax deduction to a charitable deduction.
  • Standard Deduction Increases from $6,350 and $12,700 under current law to $12,000 and $24,000 for individuals and married couples, respectively.
  • Personal Exemption(s) Repealed, beginning in 2018.
  • Child Tax Credit – Expands from $1,000 to $2,000 per child for single filers and married couples. The tax credit is fully refundable up to $1,400 and begins to phase out for families with annual household income of over $400,000.
  • Mortgage Interest Deduction
    • For all homeowners with existing mortgages, there will be no change to the current mortgage interest deduction.
    • For homeowners with new mortgages on a first or second home, the home mortgage interest deduction will be available on up to $750,000 of indebtedness.
  • Medical Expense Deduction Expanded for 2018 and 2019 for medical expenses exceeding 7.5% of adjusted gross income; it will rise to 10% beginning in 2020.
  • ACA (Obamacare) Individual Mandate Penalty Tax Eliminated.
  • Alternative Minimum Tax (AMT) Increases the exemption amount, which should reduce the number of impacted taxpayers.
  • Savings Vehicles for Education Allows families to use 529 accounts to save for private elementary, secondary and higher education.
  • Retirement Savings Options 401(k)s and Individual Retirement Accounts (IRAs) are left unaltered.
  • Roth IRAs – These accounts are left largely unchanged, except for the ability to re-characterize. The ability to convert a traditional IRA to a Roth is still available.
  • Gifting from IRA – This provision remains effective, allowing taxpayers to gift up to $100,000/year directly from their IRAs in satisfaction of part or all of their required minimum distribution.
  • Charitable Contributions – Largely unchanged, but donations to universities for purchasing tickets will no longer be deductible. Consider making your next donation before the end of 2017 instead of waiting until 2018.

The bill presents opportunities for tax and investment planning — some new and some established. Along with the tax professionals of Warren Averett, we will continue to analyze the details of the proposed law for additional opportunities to bring to our clients. For additional details and specifics, you can find more information here.