We have spent a month trying to study The Tax Cuts and Jobs Act, reading analyses of the new tax laws, and talking to accountants, bankers and business owners about what the laws really mean. The most important thing that I have learned is that there are dozens of provisions that may be important to you. Some of these changes overlap – you lose a deduction for one item, but gain on your standardized deduction. Your top five things to know are going to be different from someone else’s top five, depending on their income, occupation, marital status and other factors. It is nearly impossible to write a top five or even a top ten list. The advice that I am giving to everyone I know is to pay attention to all of their finances, and ask lots of questions.
Since the headline said that there are five things to know, I guess I am obliged to talk about the five things that I am most interested about:
- Mortgage interest deductions: There was a lot of back and forth on this issue. In the end, if you purchased a home before December 15, 2017, your interest is deductible up to a mortgage of $1 million. If you buy in 2018, then the mortgage interest is deductible only up to a purchase of $750,000. For a second home, this $750,000 limit applies regardless of when you purchased. Finally, there is no interest deduction for any home equity loan, regardless of what the proceeds are used for. (All of these limits are for married tax payers filing jointly. They are halved for married filing separately).
- Pass through-entities: Owners of pass-through entities such as partnerships, S corporations, LLC’s and sole proprietorships, will be allowed to deduct up to 20% of “qualified business income.” This deduction has lots of requirements, limitations and exclusions. These limitations are based on the income of the taxpayer, the W-2 wages paid by the pass-through entity, and the actual business (sadly, some attorneys and accountants are not allowed to take this deduction).
- Corporate taxes: The tax rate has been reduced from a maximum of 35% to a 21% flat rate. But (at least) two other provisions will also effect corporate taxes. First, the “bonus depreciation” on property placed into service between September 27, 2017 and January 1, 2023 is increased from 50% to 100%. Also, the bonus depreciation now can apply to purchases of used equipment. Second, the maximums for depreciation of company-owned vehicles has been raised significantly.
- Like-kind exchanges: The new laws eliminate like-kind exchanges for anything except real property.
- Alimony: For all divorce or separation agreements that are signed after December 31, 2018, a person who pays alimony is not permitted to deduct it from income, and the person receiving alimony is not required to list it as taxable income.
This is only a fraction of the changes that the Tax Cuts and Jobs Act has made. You should check in – early and often – with your accountant, financial planner, attorney, and other trusted advisors, to make sure that you understand how these changes affect you.
Interested in additional analysis of and learning opportunities relating to the Tax Cuts and Jobs Act? Rather than reviewing all of the Google results, here are a few articles and events on the Act from local accounting firms:
New Tax Law: Top-Level Impacts for Businesses and Individuals from RKL’s Working Capital Blog
New Year brings new tax code from Trout, Ebersole and Groff
The Myths and Realities of the New Tax Cuts and Jobs Act, a seminar hosted by Ross Buehler Falk & Company on January 18, 2018
Important Tax Changes for 2018 from Bertz, Hess & Co.
Tax Changes for 2018 from Weinhold, Nickel & Company
What the Tax Cuts Mean for Individuals and Businesses by Walz Group
Highlights of the New Tax Reform Law & Help Prevent Tax Identity Theft By Filing Early, the monthly update from The Shepps Group