Overview of New Tax Law – 2018 – 2025
As a general rule without considering all the other changes with respect to itemized deductions and personal exemptions etc…, most taxpayers received a rate percentage decrease of 3%. The true middle class received a decrease of 4% while the upper middle class only received a 1% decrease. The most wealth taxpayers received a 2.6% decrease. C Corporation tax rate drops to 21% but still double taxed so do not get too excited.
Alternative Minimum Tax (AMT)
Unfortunately, AMT is still with us. However, the good news is that the exemption levels increased approximately 26.5% while the phase-out of the exemption increased 4-fold or more. In simple terms, AMT will become less significant to those in AMT.
No deduction after the end of 2018. Too late, consider staying married.
Good news here, the standard itemized deduction nearly doubled for everyone so many individual taxpayers will no longer itemize. As you know, this will have far reaching impacts beyond a tax conversation.
Bad news here, personal exemptions were repealed entirely so those of you with a house full of children will feel the impact here.
Medical – The 10% floor in arriving at deductible medical expenditures decreased to 7.5% which is good news. Importantly, HSA contributions are still deductible up to $6,900 for a family.
State and Local Taxes – State and local income and property taxes are now limited to $10,000. Yes, that is combined so this is a significant change for almost every taxpayer. States with high tax rates such as New York and California are already filing lawsuits against the Feds. The benefits of most state credit purchases have been eliminated as well.
Mortgage Interest – Interest on your primary and second home mortgages were curtailed to a total limit of $750,000 of debt. Old indebtedness was grandfathered in under the old rules, so this applies to new debt. Interest deductions for HELOC’s (home equity line of credit) debt is basically dead without a grandfather. Refinancing HELOC’s to a primary should be considered if your overall home indebtedness would remain below the $750,000 cap.
Charitable Deductions – Still alive and the limit for gifting to charities rose from 50% of AGI to 60% of AGI.
Misc. Itemized Deductions (2% Floor Items) – Virtually eliminated which can impact certain taxpayers who have substantial employee business expenses so call us.
Like-Kind Exchanges (LKE)
Limits applicability to LKE exchanges of real property that is not held primarily for sale. But see Opportunity Zones next.
New Opportunity Zones, the LKE Cure
Most any type of gain rolled over into an Opportunity Zone fund which is later invested in a business or property within an Opportunity Zone. Our firm has partnered with a broker dealer and has an Opportunity Zone Fund opened, qualified and ready for your use. To learn more, call us or visit scopportunityzone.com.
Section 529 Plans
Expanded to include up to $10,000 used for tuition in an elementary or secondary public, private or religious school. This is huge for families in this area especially.
New Section 199A
Start paying attention here. The old Domestic Production Activity Deduction that benefited very few was replaced with a deduction that benefits almost every small business owner by 20% off the top. Qualified business income from a sole proprietor, S Corporation or a Partnership can benefit. There are income limitations but are set pretty high. All small business owners should meet with us about this.
Estate, Gift and GST
The exemptions doubled to $11,200,000 per citizen and if a marital trust is in place, that means $22,400,000 is now excluded from tax if you die before the 2025 deadline. Now is the time to start gifting like you just don’t care. However, the need for extensive estate planning is not usually cost beneficial.
Child Tax Credits
Doubled and is now 70% refundable. Phase outs more than doubled which is more good news.
Mandatory Health Insurance
Repealed without further comment because this can be viewed as good or bad depending on your situation.
Indexing for Inflation
Finally, Congress realized inflation exists, so everything indexed.