Modifying the Individual Tax Brackets
From 2018 through 2025, the Act would lower individual tax rates across the board. Beginning January 1, 2026, individual rates would return to current levels. During the eight-year period of lowered rates, the Act would retain seven tax brackets for individuals, but lower the rates to 10%, 12%, 22%, 24%, 32%, 35%, and 37%.
Increasing the Standard Deduction
For 2018 through 2025, the Act would increase the standard deduction to $24,000 for married filing jointly, $12,000 for single taxpayers, and $18,000 for head of household. The additional standard deduction for the aged or blind would continue at $1,300 ($1,600 for unmarried) in 2018.
Eliminating the Personal Exemption
The Act would eliminate the deduction for personal exemptions from 2018 through 2025. The personal exemption is $4,050 for each taxpayer and dependent in 2017.
Eliminating or Changing Many Deductions
For tax years 2018 through 2025, the Act would eliminate a number of deductions.
- State and Local Tax Deduction
Currently, individual taxpayers who itemize deductions may deduct the amounts they pay for state and local property taxes and income taxes from their federal income. The Act would generally eliminate this deduction for tax years 2018 through 2025. The Act would, however, include an exception. Individual taxpayers could continue to claim as an itemized deduction in an amount up to $10,000 ($5,000 for married filing separately) per year an aggregate of state and local income taxes and/or property taxes paid during tax years 2018 through 2025. Notably, property taxes incurred in a trade or business would continue to be fully deductible on a Schedule C, Schedule E, or Schedule F.
- Home Mortgage Interest Deduction
The Act would restrict the home mortgage interest deduction to apply to new acquisition indebtedness in an amount up to $750,000 (MFJ) or $375,000 for married filing separately. The Act would also suspend the deduction for home equity indebtedness for all taxpayers for tax years 2018 through 2025.
- Charitable Contributions
The Act would generally leave in place current law regarding the deductibility of charitable contributions. With the increase in the standard deduction and the loss of many other itemized deductions, however, many charitable contributions would no longer result in a tax deduction. The Act would not change the ability of those over 70 1/2 to make qualified charitable distributions from an IRA, without including those distributions in income.
- Miscellaneous Itemized Deductions Subject to the 2 Percent Floor
For tax years 2018 through 2025, the Act would suspend the itemized deduction for all miscellaneous itemized deductions subject to the two percent floor. These deductions include, among many others, those for:
- Unreimbursed employee expenses (including, among many others, home office expenses, uniform expenses, travel expenses, meals and entertainment expenses, license fees, tools used for work, and job search expenses)
- Tax preparation expenses
- Safe deposit box rental
- Hobby expenses
- Investment fees and expenses
- Legal expenses
- Medical Expenses Deduction
The Act retains the current itemized deduction for medical expenses exceeding 10 percent of the taxpayer’s adjusted gross income. For tax years 2017 and 2018, the Act would decrease this AGI threshold for everyone (not just those 65 and older) to 7.5 percent.
- Alimony Deduction
Beginning with divorce decrees signed after December 31, 2018, alimony payments would no longer be deductible. They would, however, be excluded from the income of the recipient.
- Moving Expenses
The Act suspends the deduction for moving expenses, with the exception of moving and storage expenses incurred by members of the Armed Forces. This suspension applies for tax years 2018 through 2025.
- Educator Expenses
The Act retains the current $250 above-the-line deduction for eligible educators.
Increasing the Child Tax Credit and Creating a New Dependent Credit
To offset the considerable impact of the loss of many deductions and the $4,050 personal exemption per person upon families, the Act raises the child tax credit from $1,000 to $2,000 per qualifying child for tax years 2018 through 2025. Although the Senate bill would have expanded the credit to apply to qualifying children under the age of 18, instead of 17, the Act leaves the current age limit of “under 17” in place. Thus, the $2,000 credit applies only to children who are 16 years old and younger.
The Act also provides a nonrefundable $500 credit for dependents who do not qualify for the child tax credit. This would include dependent children over the age of 16 and dependents
The Act retains current law for the following credits for individuals:
- Credit for the elderly and permanently disabled
- Credit for plug-in vehicles
- American Opportunity Tax Credit
- Earned Income Tax Credit
- Adoption Credit
Expanded Section 529 Plans
The Act would expand IRC §529 plans to allow funds to pay expenses for K-12 private schools.
Other Education Provisions
- Allows student loan debt discharged because of death or disability to be excluded from income for years from 2018 through 2025.
- Retains the current deduction for student loan interest
- Retains the current American Opportunity Tax Credit
Alternative Minimum Tax
The Act would eliminate the corporate alternative minimum tax (AMT) beginning in 2018, but retain the AMT for individuals. The individual AMT, however, would see increased exemption amounts and phase-out thresholds for individuals through 2025.
Individual Shared Responsibility Payment
The Act would set the Individual Responsibility Payment to $0, beginning in 2019, meaning that individuals who do not have health insurance in 2019 and later will not be liable for the penalty. The penalty remains in place for tax years 2017 and 2018.
Estate, Gift, and Generation Skipping Tax
The Act would double the basic exclusion amount for estates of decedents dying during tax years 2018 through 2025 and for gifts made during those tax years. Under the Act, the basic exclusion amount for each person would be $11.2 million in 2018 (double the $5.6 million exclusion provided under current law).
Corporate Tax Rate
The Act would permanently lower the maximum corporate tax rate from 35% to 21%, beginning in 2018.
Planning Note: The Act would transform the corporate tax structure from a graduated system, to a flat rate for all income. As such, some small corporations, would see an increase in their corporate income tax rate from 15 percent to 21 percent.
Lowering Tax Rates for Pass-Through Business Income
From 2018 through 2025, the Act would generally allow many individuals receiving income from a pass through business—including a sole proprietorship, an S corporation or a partnership—to take a new Section 199A deduction.
Qualified Business Income
These individuals could generally deduct 20 percent of “qualified business income,” attributable to a domestic trade or business, from their taxable income. Qualified businesses income does not include investment income, such as that from capital gain or dividends.
The 199A deduction would generally be limited to 50 percent of W-2 wages paid. However, the wages limitation would only apply to individuals with taxable income greater than $315,000 (MFJ) or $157,500 for singles.
Service Trade or Businesses
Specified service trade or businesses are generally excluded from taking the Section 199A deduction.
First-Year Bonus Depreciation and Expensing
- Additional First-Year Depreciation
The Act would significantly expand current cost recovery options for businesses for five years and then reduce those options through 2026. The Act would generally allow 100 percent bonus depreciation for five years for qualifying property acquired and placed into service on or after September 27, 2017. Notably, the Act provides that these first-year additional depreciation property provisions would apply to used property, as well as new property.
- Section 179
Beginning in 2018, the Act would expand Section 179 to provide an immediate $1 million deduction (up from $510,000 in 2017) with a $2.5 million phase-out threshold (up from $2,030,000 in 2017).
Entertainment expenses are disallowed; the current 50% limit on the deductibility of business meals is expanded to meals provided through an in-house cafeteria or otherwise on the premises of the employer.
Other Key Ag-Related Provisions
- Farm Equipment Depreciation
Beginning in 2018, the Act would allow farm equipment to be depreciated over a period of five years, instead of seven years.
The Act retains IRC §1031 like-kind exchange treatment for real property, but eliminates it for personal property, such as farm equipment or breeding heifers.