10 New Tax Breaks and 10 That Went Away

10 New Tax Breaks...and 10 That Went Away

6/5/2018

In December 2017, lawmakers passed the Tax Cuts and Jobs Act (the “Act”), a sweeping tax reform law that impacts you.

First, let's start with three tax concepts that were left intact:
1. Tax-free death benefit of life insurance.  Your beneficiaries can receive life insurance proceeds
free from income tax with very few exceptions.
2. Tax-deferred growth of life insurance cash values.  You can grow cash values in your life insurance policy
tax-deferred, making permanent life insurance a great part of your financial portfolio.
3. Access to cash value without current taxation.  When properly structured, life insurance policy cash
values may be accessed through loans and/or surrenders to basis without current taxation.

10 new tax breaks
1. Doubled standard deduction (2018-2025). In 2018, the standard deduction is $12,000 for single taxpayers, $18,000 for taxpayers filing as heads of household, and $24,000 for married couples filing jointly.
2. New brackets and lower rates (2018-2025). Top individual tax rates dropped from 39.6 percent to
37 percent, with seven brackets that vary by income: 10, 12, 22, 24, 32, 35, and 37 percent.
3. Child tax credit increased (2018-2025). The child tax credit increased from $1,000 to $2,000 per qualifying child, subject to a maximum refundable amount and increased income phase-outs.
4. Higher limits on charitable deductions (2018-2025). The deduction limit for cash donations to qualifying charities increased from 50 to 60 percent of adjusted gross income (AGI). The increased limit may mean more tax savings for charitably inclined, high income earners.
5. Annual gifting expanded. The IRS increased the annual gift tax exclusion from $14,000/year to $15,000/year per beneficiary, giving the opportunity to pass even more wealth free of estate and gift taxes through yearly gifts.
6. Reduced estate tax exposure (2018-2025). The lifetime exemption amount for estate and gift tax purposes has been substantially increased to $11.18 million per person (or $22.36 million for married couples who timely elect portability, which is the ability to carry-over the unused exclusion amount of a deceased spouse) in 2018. If you previously exhausted your lifetime exclusion amounts through gifting, you may have a second chance to make additional, tax-free gifts for a limited time.
7. Individual AMT (Alternative Minimum Tax) modified (2018-2025). The Act temporarily increased the exemption amounts and phase-out thresholds for the individual AMT. Generally, this means fewer taxpayers will be subject to the individual AMT.
8. 20 percent deduction on qualified business income (2018-2025). Sole proprietors and owners of businesses taxed as pass-through entities – including partnerships, S corporations, and most LLCs – may see tax savings if they qualify for the deduction.
9. Corporate flat tax rate. C corporations and personal service corporations now have a flat 21 percent tax rate, one of the few permanent provisions in the Act.
10. Corporate AMT (Alternative Minimum Tax) permanently eliminated. This tax previously impacted certain C corporations.

10 tax breaks that went away
1. Personal and dependency exemptions suspended (2018-2025). The Act suspended personal and dependency exemptions. However, the increased standard deduction, enhanced child tax credit, and overall tax rate changes may offset or minimize the impact of this suspension on many taxpayers.
2. State and local tax deduction capped (2018-2025). The deduction for individual state and local income taxes, state and local property taxes and sales taxes is capped at $10,000. Experts indicate the cap will have the greatest negative impact on high-income earners in high-tax states, like California and New York.
3. Modified mortgage interest deduction (2018-2025). The mortgage interest deduction will be available to fewer taxpayers if total applicable debt is less than $750,000, down from the previous limit of $1 million. Older debt may be “grandfathered.”
4. Restricted interest deduction for HELOCs (2018-2025). Under the Act, taxpayers may not deduct interest on a home equity line of credit (HELOC) unless the funds are used for certain limited purposes and qualify as “acquisition indebtedness,” subject to limitations.
5. Certain alimony payments no longer deductible. For divorce or separation agreements entered into (and in some cases, modified) after December 31, 2018, taxpayers are no longer able to deduct alimony payments. This provision is permanent.
6. Repeal of sporting event ticket deduction. Under prior law, taxpayers who made a charitable contribution to a college or university in exchange for the opportunity to purchase tickets at certain sporting events could still deduct 80 percent of the donated value. The Act eliminates this deduction.
7. Pease limitation suspended (2018-2025). This previously reduced certain itemized deductions – such as the state and local tax deduction and the home mortgage interest deduction – for individual taxpayers with income levels above certain thresholds.
8. Roth conversions cannot be undone. Under previous law, taxpayers could reverse or “unwind” a Roth conversion within a certain period of time, an attractive option after a significant market decline. The Act eliminates this possibility.
9. Deduction for tax preparation fees eliminated (2018-2025). A number of miscellaneous itemized deductions – including the deduction for tax preparation fees – have been suspended.
10. “Kiddie” tax calculation modified. The “kiddie” tax applicable to the net unearned income of young children is no longer calculated with reference to the parents’ tax rates, but with reference to the tax rates for trusts and estates.

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