Tax Change Update – Special Report
Through a flurry of year end activity and deal making, Congress and the President have delivered some of the most far reaching tax changes in the federal tax law in decades. As with any changes like this, there will be winners and losers.
Many of the provisions are temporary, especially for provisions that apply to individuals. This was to stay within budget parameters, but there is no guarantee that the provisions will be extended in the future.
Following is a summary of the most far reaching provisions. Kirsch CPA Group will provide additional guidance on these tax changes in the coming weeks.
- Tax Rates are generally reduced for all taxpayers beginning in 2018. These rates will expire after 2025. The IRS has announced that revised withholding tables will be issued in January 2018.
- Capital gain income and qualified dividends will continue to tax as under current law.
- The standard deduction is nearly doubled for all taxpayers. This will cause fewer taxpayers to itemize deductions.
- The deduction for personal exemptions is eliminated through 2025. An enhanced child tax credit will make up some of the difference.
- Mortgage interest deduction will be limited to interest on the first $750,000 of debt incurred to acquire a residence. Existing mortgages will be grandfathered under the current $1 million limit.
- Deductions for non-business state and local taxes (including income and property taxes) will be limited to $10,000. Property taxes for 2018 can be prepaid and deducted in 2017, but there are limitations on deductions for prepayment of income taxes.
- Deductions for miscellaneous itemized deductions are eliminated.
- Deductions for medical expenses are temporarily enhanced.
- Most deductions and credits related to education remain unchanged.
- Alimony will not be deductible for agreements executed beginning in 2019.
- Estate and gift tax exclusions are doubled beginning in 2018.
- The alternative minimum tax remains, but with larger exemption amounts.
- The Affordable Care Act individual shared responsibility requirement is repealed after 2018.
- The top tax rate on C corporations is decreased to 21% from its current level of 35%.
- The alternative minimum tax on corporations is repealed.
- Enhanced bonus depreciation and Section 179 provisions will now allow for a 100% deduction for most non-real estate capital expenditures.
- Enhanced depreciation deductions will be available for vehicle purchases.
- The domestic production activities deduction (DPAD) is eliminated, as well as the tax-free exchange treatment for property other than real estate.
- The research and development credit remains in place, but with changes.
- Business with more than $25 million in gross receipts will have a cap on the amount of interest expense they can deduct – generally 30% of adjusted earnings before interest and depreciation.
- Pass through businesses – partnerships, S corporations and sole proprietorships – will be able to take advantage of certain deductions resulting in a lower tax rate. These are very involved and complex rules.
- Significant structural changes were made to the way foreign profits of US companies are taxed.
- Prior foreign earnings will be able to be repatriated to the US at favorable tax rates.