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February 8, 2018
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Summary of the "Tax Cuts and Jobs Act"

On December 22, 2017, President Trump signed into law the "Tax Cuts and Jobs Act" (P.L. 115-97), a sweeping tax reform law that will entirely change the tax landscape. This comprehensive tax overhaul dramatically changes the rules governing the taxation of individual taxpayers for tax years beginning before 2026, providing new income tax rates and brackets, increasing the standard deduction, sus-pending personal deductions, increasing the child tax credit, limiting the state and local tax deduction, and temporarily reducing the medical expense threshold, among many other changes. The legislation also provides a new deduction for non-corporate taxpayers with qualified business income from pass-throughs. For businesses, the legislation permanently reduces the corporate tax rate to 21%, repeals the corporate alternative minimum tax, imposes new limits on business interest deductions, and makes a number of changes involving expensing and depreciation. The legislation also makes significant changes to the tax treatment of foreign income and taxpayers, including the exemption from U.S. tax for certain foreign income and the deemed repatriation of off-shore income. Following is a summary of the key provisions.

  Current Tax Law New Tax Law
Personal Tax Rates 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
Single: $6,350
Married filing jointly: $24,000
Head of household: $18,000
Single: $12,000
Child Tax Credit $1,000 per child $2,000 per child (refundable to $1,400 per child); $500 for non-child dependents
Personal Exemption $4,050 Repealed
Personal State Income, Sales Tax and Property Tax Allowable as an itemized deduction 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 adjusted gross income (AGI) Deductible to the extent they exceed 10% of AGI (7.5% of AGI in 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 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 for farms (two years); indefinite carryover deduction limited to 80% of pre-NOL income for losses generated after 2017
Excess Business Loss No provision Net business losses in excess of $500,000 ($250,000 single) are not deductible; they become 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 business 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 form 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 basis retained
The complexities surrounding the Act can be formidable. If you wish to work through the mechanics of the Act with particular attention to the impact it can have on your specific situation, please give us a call.

Kemper CPA Group LLP

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