Tax Reform Chart: Former Law Compared to the New Law
Tax reform legislation was signed into law by President Trump on Friday, December 22. The final bill reflects three minor changes relative to the House and Senate conference committee agreement, including removal of a rule permitting use of a 529 savings account for home-schooling expenses, an update to the title of the bill, and a change to the criteria for imposing a new excise tax on endowments of private colleges and universities. Here is a summary of the key provisions in the new law.
|Current Tax Law||New Tax Law|
|Personal tax rates1||Seven tax brackets: 10%, 15%, 25%, 28%, 33%, 35%, 39.6%||Seven tax brackets: 10%, 12%, 22%, 24%, 32%, 35%, 37%|
|Personal long-term capital gains and qualified dividend tax rates||Up to 23.8%||Unchanged; rates tied to existing taxable income thresholds|
|Maximum pass-through tax rate||39.6%||Ordinary rates with deduction of 20% of qualifying domestic income; limited deduction for income from lower-income service businesses. Service businesses excludes engineers and architects|
|Maximum corporate tax rate||35%||21%|
|Personal standard deduction||Married filing jointly: $12,700
Head of household: $9,350
|Married filing jointly: $24,000
Head of household: $18,000
|Child tax credit||$1,000 per child||$2,000 per child (refundable to $1,400 per child); $500 for non-child dependents|
|Personal state income, sales tax, and property tax||Allowable as an itemized deduction2||Deduction for property tax and either income or sales tax limited to $10,000|
|Mortgage interest||Deductible on up to $1.1 million of debt; interest on second home deductible||Deductible on up to $750,000 of debt (including second home); no home equity interest deduction|
|Individual Alternative Minimum Tax (AMT)||Imposed when minimum tax exceeds regular income tax||Increases AMT exemption amounts and phase-out|
|Medical expenses||Deductible to the extent they exceed 10% of AGI||Deductible to the extent they exceed 10% of adjusted gross income (AGI) (7.5% of AGI for 2017 and 2018)|
|Alimony||Deductible to payor; taxable to recipient||Not deductible to payor; not taxable to recipient for decrees executed or modified after 2018|
|Individual health insurance mandate||Individuals penalized for failure to carry minimum essential health insurance coverage||Repealed|
|Depreciation||Fixed assets are generally capitalized and depreciated; in some cases, Section 179 immediate expensing of up to $500,000 is available||Immediate expensing of most new and used property (excluding structures) through 2022; section 179 limit increased to $1 million|
|Depreciable life of buildings||39 years for most non-residential buildings; 27.5 years for residential rentals||Unchanged|
|Net operating losses (NOL)||Generally carried back 2 years and forward 20 years||Carryback repealed except farms (two years); indefinite carryover deduction limited to 80% of pre-NOL income for losses generated after 2017|
|Excess business loss||No provision||Net businesses losses in excess of $500,000 ($250,000 single) are not deductible; they become a NOL carried over to the next year|
|Business interest||Generally deductible||Generally limited to the extent that interest exceeds 30% of income; unlimited carryover of excess. Determined at entity level, but spillover effects to owner. Limitation not applicable if average annual gross receipts do not exceed $25 million|
|Cash method of accounting||Generally limited to business with less than $1 million, $5 million, or $10 million in receipts, depending on facts||Expanded to include businesses with less than $25 million in receipts with special rules for tracking inventory costs|
|Domestic production activities deduction||Domestic producers eligible for a deduction equal to 9% of their qualifying income||Repealed after 2017|
|Corporate AMT||20% corporate AMT||Repealed after 2017; AMT credits refundable from 2018 through 2021|
|Gift and estate tax||Tax of up to 40% imposed on gifts and estates, subject to a $5.49 million lifetime exemption per spouse||Lifetime exemption doubled; estate tax remains in effect. Step-up in basis retained|
- 1All individual provisions expire after 2025.
- 2The bill clarifies that a payment made in 2017 for 2018 state or local income tax will be deemed paid on December 31, 2018 (i.e., not deductible in 2017). A reasonable estimate of a 2017 tax liability, however, may be paid before December 31, 2017. Any overpayment credited to 2018 from the 2017 tax year is taxable in 2018 to the extent the overpayment provided a tax benefit. Furthermore, a 2017 overpayment credited to a 2018 state and local income tax liability will be subject to the $10,000 limit for the combined state and local income tax (or sales tax, in lieu of income tax) plus real property taxes.
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