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Summary of the 2017 Tax Legislation: Effect on Individuals

On December 20, 2017, Congress passed a wide-ranging tax reform bill. It was signed into law by President Trump on December 22, 2017. Unless noted otherwise, the provisions of the new tax bill are generally effective January 1, 2018 through December 31, 2025. After that date, with some exceptions, the rules sunset back to existing law as of 2017. The purpose of this article is to provide a high level overview of the impact of selected provisions of the new legislation on U.S. individuals.
New 2018 Individual Tax Rates  
 
Marginal Tax
Rate
Single
Married Filing
Jointly
Head of Household
Married Filing Separately
10%
$0-$9,525
$0-$19,050
$0-$13,600
$0-$9,525
12%
$9,525-$38,700
$19,050-$77,400
$13,600-$51,800
$9,525-$38,700
22%
$38,700-$82,500
$77,400-$165,000
$51,800-$82,500
$38,700-$82,500
24%
$82,500-$157,500
$165,000-$315,000
$82,500-$157,500
$82,500-$157,500
32%
$157,500-$200,000
$315,000-$400,000
$157,500-$200,000
$157,500-$200,000
35%
$200,000-$500,000
$400,000-$600,000
$200,000-$500,000
$200,000-$300,000
37%
Over $500,000
Over $600,000
Over $500,000
Over $300,000
        
 
         Pre-2018                                              Post-2018
Alternative Minimum
Tax (AMT)
Exemption amounts of $86,200 (married) and $55,400 (single).
Phase-out of exemption amounts begins at $164,100 (married) and $123,100 (single).
Exemption amounts increased to $109,400 (married) and $70,2300 (single).
Phase-out of exemption amount begins at $1,000,000 (married) and $500,000 (single).
Individual standard deduction/personal exemptions
Standard deduction is $13,000 (married) and $6,500 (single).
Personal exemption of $4,150 phased out for higher incomes.
Standard deduction nearly doubled to $24,000 (married) and $12,000 (single).
Personal exemptions repealed at all income levels.
Itemized Deductions
Deductions allowed but subject to the “PEASE limitation,” which reduces the availability of itemized deductions at income levels starting at $320,000 (married) and $266,700 (single).
Individual deduction for state and local taxes (SALT) for income, sales and property is limited in the aggregate to $10,000 (married and single filers) and $5,000 (married filing separately).
“PEASE limitation,” including for charitable deductions, is repealed.
Capital Gain Exclusion for  Primary Residence
Allows individuals to exclude gain of up to $500,000 (for joint filers) from the sale of a primary residence.
Taxpayer must own and use the house as primary residence for 2 out of the previous 5 years and exemption can be used only once every 2 years.
Unchanged
Like-kind exchanges
Allows for the disposal of an asset and the acquisition of another replacement asset without generating a current tax liability from the gain on the sale of the first asset.
Applies to like-kind exchanges of real property as well as certain categories of personal property.
Limits applicability to like-kind exchanges of real property that is not held primarily for sale.
*This provision does not expire in 2025.
 
Section 529 Plans
Distributions may be used for expenses relating to higher (post-secondary) education.
In addition to high (post-secondary) education, distributions from 529 plans of up to $10,000/year per student can be used for tuition in connection with enrollment or attendance at an elementary or secondary public, private, or religious school.
* This provision does not expire in 2025.
Pass-through deduction
Income received from partnerships, S corporations, or sole proprietorships is passed-through to the owner’s individual income tax returns, where it is taxed as ordinary income.
There is a new 20% deduction for qualified business income from a partnership, S corporation, or sole proprietorship.
Charitable deduction changes
Cash gift to public charities is deductible as long as it doesn’t exceed 50% of the taxpayers Adjustable Gross Income (AGI).
80% of value spent on university athletics seating rights can be deducted.
Cash to public charities is deductible as long it doesn’t exceed 60% of the taxpayers’ AGI.
80% deduction for university athletic seating rights is repealed.
Gift/Estate/Generation-Skipping Transfer (GST) tax exemption
Estate, gift and GST tax exemptions are each $5.6 million per US domiciliary.
Estate, gift and GST tax exemptions are doubled to $11.2 million per US domiciliary.
Like most individual provisions, the exemptions sunset after 2025 and revert back to the law in effect for 2017 with inflation adjustments; Regulations will confirm that gifts made during this period (2018-2025) up to the increased exemption amounts will not later be subject to tax if the exemptions are reduced, (i.e., no “clawback”).
The basis step-up rules, adjusting the basis of any asset passing from a decedent to the fair market value of that asset as of the decedent’s date of death, continue to apply.
The annual gift tax exclusion increases to $15,000 (a married couple may make gifts of $30,000 per recipient). This change is due to inflation and not the new legislation.
Child Tax Credit
$1,000/qualified child
Phase-out of credit begins at $75,000 (single) and $110,000 (married).
Increased to $2,000/qualified child, with $1,400 being refundable.
Phase-out of credit begins at $200,000 (single) and $400,000 (married).
Individual Mandate / Health Insurance
Requires most Americans to purchase health insurance coverage; taxpayers must submit proof of healthcare coverage with their tax return or pay a penalty.
Individual mandate is repealed
* This does not expire in 2025.
Alimony
Ex-spouses who pay alimony can deduct the expense from their federal income taxes; ex-spouses receiving alimony payments have to claim the money as taxable income.
Alimony payments will not be deductible and will not be income to the recipient. This is effective for any divorce or separation agreement executed after December 31, 2018.
* This does not expire in 2025.
Future Inflation Adjustments
In general, tax brackets and many other tax code limits are inflation adjusted using Consumer Price Index – Urban (or CPI-U).
Many but not all of the indexed limits would now be indexed using Chained-CPI-U, which generally leads to slightly slower cost of living adjustments each year.
* This does not expire in 2025.
 
Disclosure – This article has been prepared by Jeffrey Burr LTD. and is provided for informational purposes only. This material does not provide legal, tax, regulatory or accounting advice. Prior to entering into any proposed transaction, you should determine, in consultation with your own advisors, the potential economic, legal and tax risks and consequences.
 
-Derek N. Hatch, Esq.