Tax Cuts and Jobs Act

How Big is Your Tax Cut?

Historic tax bill – first since 1986 to radically change the US Tax Law – but how big is your Tax Cut?

Tax Rates

CURRENT LAW (2017) has a seven tier rate structure: 10, 15, 25, 28, 33, 35 and topping @ 39.6% for all filing statuses.

CONFERENCE AGREEMENT

Seven tier rate structure still exists: 10, 12, 22, 24, 32, 35 and top tax rate of 37% for all filing statuses.  New rate structure begins after December 31, 2017 and does not apply to tax years after December 31, 2025.

COMMENT

Lower tax rates is an effective tax cut.  For Expats, you’ll always pay tax to the higher taxing country

Standard Deduction

CURRENT LAW (2017)

Standard Deduction 2017  and as per Conference Agreement:

Single/Married Filing Separate:  $6350  INCREASED to $12000

Head of Household: $9350  INCREASED to $18000

Married Filing Jointly /Surviving Spouse: $12700   INCREASED to $24000

Additional deduction for over 65 and blind continues unchanged

Increase in Standard Deduction does NOT apply to Tax Years beyond December 31, 2025

COMMENT

Overall a decent Tax Cut for Smaller families and individuals

Personal Exemption

CURRENT LAW (2017):

For 2017 the personal exemption amount of $4050 is allowed for taxpayer, taxpayer’s spouse and each dependent.

CONFERENCE AGREEMENT

From January 1 2018 Personal Exemptions are ELIMINATED until December 31, 2025

COMMENT

Eliminating the Personal Exemption is not a Tax Cut partially offset by larger Standard Deduction (and larger Child Tax Credit) it can be nice tax cut for smaller families and individuals.

Child Tax Credit

CURRENT LAW (2017):

Individuals may claim a tax credit for each qualifying child under the age of 17.  The amount of the credit per child is $1,000.  A child who is not a citizen, national or resident of the United States cannot be a qualifying child.

Adjusted Gross Income phase out for Child Tax Credit:

$75,000 for Single individual,  $110,000 Married Filing Jointly (MFJ), $55,000 for Married Filing Separately (MFS)

CONFERENCE AGREEMENT:

Temporarily increases the Child Tax Credit to $2000 per qualifying child under the age of 17 during the taxable year.  In addition, a $500 nonrefundable credit is provided for other qualifying dependents other than qualifying children.   The maximum refundable may not exceed $1400 per qualifying child.

Adjusted Gross Income phase Out of Child Tax Credit:  MFJ $400,000, $200,000 for all other taxpayers

Provision expires December 31, 2025

COMMENT

Child Tax Credit is a big win for families with minor children – increasing refundable credit up to $1400 per child – nice tax cut. The provision for a $500 credit for other dependents is a newly created tax cut.

Mortgage Interest Deduction

CURRENT LAW (2017)

Mortgage interest deduction is currently allowed as an alternative to Standard Deduction (Schedule A) for interest paid on either acquisition indebtedness or home equity indebtedness.  Under current law, interest on Acquisition indebtedness up to $1,000,000 (500,000 MFS) and home equity indebtedness up to $100,000 ($50,000 MFS) is deductible.

CONFERENCE AGREEMENT

For tax years beginning after December 31, 2017 and before January 1, 2026, acquisition indebtedness is limited to $750,000 ($375,000 MFS).  If property was acquired prior to December 15, 2017 the limitation is $1,000,000 ($500,000).  In addition, interest on Home equity indebtedness is not deductible.

From January 2026 acquisition indebtedness is increased back to $1,000,000 and Home Equity Loan interest are deductible again.

COMMENT

Eliminating Home Equity Loan interest deduction will negatively impact some – but the allowable amount was fairly small.

Property Tax Deduction

CURRENT LAW (2017)

Property taxes paid to State, Local or Foreign as itemized deduction.

CONFERENCE AGREEMENT

Beginning January 1, 2018, The Conference Agreement eliminates itemized deduction of Foreign Property taxes.  Deductions for property taxes paid to US State and local authorities is allowed up to $10,000.

Property taxes incurred as part of a business (Including Foreign Property taxes) – on Schedule C or Schedule E – are fully deductible.

COMMENT

No Tax Cut here.  Net tax increase for Itemizers.  Foreign Property taxes eliminated and US State/Local capped to $10,000 annually.

DISCLAIMER:

As of this writing, the Tax Cuts and Jobs Act has passed the House but was Modified by the Senate.  The modified bill must be passed by the House before being presented for signature by the President. This is not tax advice.  If you need assistance in determining how this historic Tax Cuts Bill/Law affects you, get in touch.

Link to Conference Agreement form of bill.