H2R CPA Blog

Highlights of the Tax Cuts and Jobs Act

by Rick Tonarelli, CPA, Tax Senior Manager
The Tax Cuts and Jobs Act (H.R. 1) has been approved by Congress and awaits the President’s signature. Highlights of both the corporate and individual aspects of the new law are provided below.
Note: Leaders in the Congress have signaled that a technical corrections bill may be necessary in 2018 to “fix” drafting mistakes in H.R. 1.

  • A 21% corporate tax rate beginning in 2018.
  • The repeal of corporate Alternative Minimum Tax (AMT).
  • An increase of the bonus depreciation allowance to 100% for property placed in service after September 27, 2017. Bonus depreciation is also now available on used property (initial use does not have to commence with the taxpayer).
  • Enhancements to Code Section 179 expensing limitations.
  • The elimination of the Code Section 199 Domestic Production Activities Deduction (DPAD).
  • Research and Development (R & D) Credit remains in place, but requires a 5 year amortization of R & D expenditures.
  • In general, a cap on the deduction for net interest expense at 30% of adjusted taxable income.
  • Net Operating Losses (NOL’s) are generally limited to 80% of taxable income for losses arising in years after 12/31/17. The bill also denies the carryback of NOL’s generated after 2017.
  • There is a dividend exemption system for taxing U.S. corporations on the foreign earnings of their foreign subsidiaries when the earnings are distributed. However, the deferred Earnings and Profits (E & P) of Foreign subsidiaries as of the end of 2017 will be taxed at a rate of 15.5% for cash assets and 8% for illiquid assets.

  • Temporary tax rates of 10, 12, 22, 24, 32, 35 and 37 percent. The marginal rate of 37% kicks in for taxable income > $600K for married filing joint (> $500K for single). The rate changes are scheduled to expire after 2025.
  • No change to the current tax treatment of qualified dividends and capital gains (rate remains at 20%).
  • The Net Investment Income Tax (rate of 3.8%) as well as the additional Medicare tax (0.9%) remain unchanged.
  • A near doubling of the standard deduction to $24K for married filing joint ($12K for single).
  • Elimination of the deduction for personal exemptions.
  • A limitation on the mortgage interest deduction to interest on $750K of acquisition indebtedness in the case of tax years after 2017. The bill allows the current limitation of $1M for acquisition indebtedness acquired before 12/15/17. Mortgage interest on second homes (subject to the caps) continues to be allowed, however, no interest deduction will be allowed on home equity indebtedness.
  • A limitation on annual itemized deductions for state and local taxes, including property taxes, to $10K. The bill disallows prepayment in 2017 of state and local income taxes imposed for a year after 2017.
  • The bill temporarily repeals all miscellaneous deductions that are subject to the 2% floor under current law. This includes items such as un-reimbursed employee expenses, tax prep fees, investment expenses, etc.
  • A lowering of the threshold to 7.5% of adjusted gross income for the medical expenses deduction for tax years 2017 and 2018.
  • An increase in the child tax credit from $1,000 to $2,000 per qualifying child including an increase in the AGI phase out thresholds.
  • Student loan interest deduction is retained.
  • A repeal of the deduction for alimony payments and their inclusion in the income of the recipient.
  • The bill doubles the estate (to approximately $22M for married couples) and gift tax exclusion amount for estates of decedents dying and gifts made after 12/31/17. The generation skipping tax (GST) exemption is also doubled.
  • Provisions of the Alternative Minimum Tax (AMT) are retained, however, the exemption amount is increased as are the exemption phase out levels so that AMT would apply to an income level of $1M for joint filers ($500K for single).
  • The individual mandate penalty under the Affordable Care Act is repealed. In addition, the bill repeals individual shared responsibility payment.  

​Contact H2R CPA at 412-391-2920 or team@h2rcpa.com for additional details or interpretation related to the Tax Cuts and Jobs Act, as needed. Our tax team members would be pleased to assist you with your tax planning.