What You Should Know About the New Tax Legislation
Here’s what’s changing and what’s not based on the final bill passed by Congress
On December 20, both the Senate and the House of Representatives passed the final version of the pending tax legislation, which will now move to President Trump’s desk for signature. The legislation is the largest rewrite of the U.S. tax code in more than three decades, and will have broad implications for individuals, families, and businesses.
We will share more details in the coming weeks, but here are the key takeaways you should know in the interim:
- The highest rate on ordinary income will move from 39.6 percent to 37 percent.
- For married couples filing jointly, there will be a higher threshold before moving into the highest tax bracket—from $480,000 now to $600,000 in 2018.
- The legislation nearly doubles the standard deduction.
- The holding period to obtain capital gains treatment on carried interest will go from one year now to three years moving forward.
- The deduction for state and local income taxes, sales tax, and property tax will be capped at $10,000.
- The mortgage interest deduction will be retained, but just on $750,000 of acquisition indebtedness, not $100,000 home equity indebtedness.
- Qualifying trades and businesses will be eligible for a 20 percent deduction on pass-through income. This is one of the most detailed portions of the bill, and it will take time to digest what qualifies as business income.
- The alternative minimum tax, or AMT, still exists, but with a higher exemption.
- The estate and gift tax still exist, but with double the exemption—the $5.6 million per person limit moves to $11.2 million and the per couple cap to $22.4 million.
What remains the same
- Income tax rates on capital gains and qualified dividends were left unchanged.
- Taxes incurred in carrying on a trade or business are still deductible.
- The net investment income tax and the Medicare surtax on wages or self-employment income over $250,000/$500,000 still exist.
- Charitable deductions are still allowed, but the overall limit for charitable contributions in a given year has increased from 50 to 60 percent of adjusted gross income.
What has been eliminated
- Personal exemptions
- Certain other deductions
We continue to evaluate the bill’s final provisions, and will post more updates in the near future.
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