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Just like Santa Claus, Congress is delivering presents (and a few lumps of coal)

Dec 2017

Just like Santa Claus, Congress is delivering presents (and a few lumps of coal) in the new Tax Cuts and Jobs Act.  Now that the bill has passed both chambers of Congress, here are the main provisions of interest.

Tax law that has not changed:

  • Tax rates for interest, dividends and capital gains.
  • The surtax on net investment income above $250,000 (married filing jointly) and $200,000 (single).
  • The Medicare surtax on wages above $250,000 (married filing jointly) and $200,000 (single).
  • A step-up in basis to fair market value of inherited assets at the death of the owner.
  • The ability to use the unused exemption of a deceased spouse for estate and gift taxes.
  • The treatment of capital gains on a principal residence, including the requirement that the residence be the principal residence for at least 2 of the last 5 years.
  • The annual gift tax exclusion, which will rise to $15,000 per person.
  • Charitable contribution deductions, although the adjusted gross income limit for cash contributions increases from 50% to 60%.  The current limit remains for property (including securities) held more than one year, at 30% of adjusted gross income.
  • The ability to select specific tax lots for charitable giving and tax management.

Tax law that has changed:

  • The standard deduction will increase from $6,500 to $12,000 for individuals and from $13,000 to $24,000 for married couples filing jointly.  Filers over 65 years of age will have an additional exemption of $1,550 per individual and $2,500 for married couples filing jointly.
  • Interest on home mortgages finalized on or after December 15, 2017 will be deductible but is limited to interest on loans of no more than $750,000.  Interest on home mortgages finalized before December 15, 2017 are grandfathered, subject to the prior loan limit of $1,000,000.
  • Interest expense on any home equity loan will not be deductible beginning in 2018 regardless of when the loan was incurred.
  • State and local income taxes and property taxes will continue to be deductible but only up to a combined total of $10,000.  (See action item below.
  • The deductibility of medical expenses exceeding 7.5% of adjusted gross income is now available to all taxpayers, regardless of age.
  • Alimony payments made as a result of the execution or substantial modification of a decree after December 31, 2017 will no longer be deductible.  Alimony payments received as a result of such a decree will no longer constitute taxable income.
  • The federal estate tax exemption will continue and will increase from $5,450,000 to $11,200,000 per person in 2018 and is indexed for inflation annually thereafter.  Note that state estate taxes are not affected by this legislation so state estate taxes will continue to be an important driver of estate planning.
  • The above changes to the federal estate tax exemption will also apply to the generation skipping transfer tax.
  • In addition to colleges and universities, funds from 529 Savings Plans may be used to pay for elementary and secondary schools.
  • The Alternative Minimum Tax remains but the exemption will increase and phases out as income rises.  The AMT exemption begins to phase out at $1,000,000 of adjusted gross income for married filers and $500,000 for others.  The Alternative Minimum Tax for trust and estates remains unchanged.
  • Finally, if you are a home wine maker, you will be pleased to know that your first 200 gallons of wine will continue to be exempt from federal excise tax!

 

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