2018: New year, new limits

Authored by Randi Schuster and Tamar Hirshman

The recently enacted Tax Cuts and Jobs Act, signed into law Dec. 22, 2017, is the most significant tax legislation since 1986. In this alert, we focus on the changes that affect individual income, gift and estate tax.

Individual income tax

New tax brackets

Most income previously included in the 10 percent and 15 percent brackets is now taxed at 12 percent, and most of the income previously included in the 25 percent and 28 percent brackets is now taxed at 24 percent.

Married filing jointly

Tax rateTaxable income
10%0 - 19,050
12%19,050 – 77,400
22%77,400 – 165,000
24%165,000 – 315,000
32%315,000 – 400,000
35%400,000 – 600,000
37%Over 600,000
  • Personal exemptions -  Repealed
  • Standard deduction 
    • Joint filers - $24,000
    • Single filers - $12,000
    • Single filers with at least one qualifying child - $18,000
  • Child tax credit
    • $2,000 per qualifying child  
    • $500 per qualifying dependent other than qualifying children
    • Phaseout of credit begins with adjusted gross income in excess of $400,000 for joint filers and $200,000 for other filers
  • Changes in itemized deductions 
    • Nonbusiness real estate taxes/state and local income taxes
      • Combined deduction now limited to $10,000 overall for single and joint filers
    • Mortgage interest
      • For new acquisition mortgages during 2018 and later, interest is deductible only on first $750,000 principal balance
      • Home equity interest no longer deductible
    • Miscellaneous itemized deductions
      • Deductions previously limited to 2 percent of adjusted gross income, such as legal fees, accounting fees, investment advisory fees, safe deposit box fees, unreimbursed employee business expenses, are suspended
    • Medical expenses
      • Deductible to extent they exceed 7.5 percent of adjusted gross income for 2017 and 2018 only and then revert to the current 10 percent level
    • Charitable contributions of cash to public charities
      • Limited to 60 percent of adjusted gross income as opposed to prior law which limited the deduction to 50 percent of adjusted gross income
    • Overall limitation itemized deductions when above certain income levels
      • Repealed - no overall limitation imposed on anyone regardless of income level

Gift tax

  • Annual exclusion - $15,000
    • A donor can give up to $15,000 per recipient annually without the gift becoming taxable
  • Lifetime exemption
    • $11.2 million per donor
  •  Tax rates
    • Unchanged - highest still 40 percent

Estate and generation-skipping taxes

  • Lifetime exemption
    • $11.2 million per decedent
  • Full basis step-up and portability
    • Still in effect
  • Tax rates
    • Unchanged - highest still 40 percent

The most significant changes discussed above relate to standard and itemized deductions. Based on the new limitations on itemized deductions and the increase in the standard deduction, we expect taxpayers will have to be more creative to take advantage of itemizing deductions in the future. Starting in 2018, many more taxpayers may claim the standard deduction than before.

 


The information provided here is of a general nature and is not intended to address the specific circumstances of any individual or entity. In specific circumstances, the services of a professional should be sought. Tax information, if any, contained in this communication was not intended or written to be used by any person for the purpose of avoiding penalties, nor should such information be construed as an opinion upon which any person may rely.  The intended recipients of this communication and any attachments are not subject to any limitation on the disclosure of the tax treatment or tax structure of any transaction or matter that is the subject of this communication and any attachments.