Just after midnight on that Wednesday morning, the US Senate passed sweeping tax reform legislation. Earlier in the previous day, the US House passed the legislation with a vote of 227 - 203 with 12 GOP members voting in opposition.  A technical issue with the bill required a second vote by the House on Wednesday and it passed again.  President Trump is expected to sign the bill, but the White House has not announced when he will sign.
 
While the bill with the initial short name "The Tax Cuts and Jobs Act" does contain provisions that will directly impact individuals, much of the changes are focused on the business sector.  Specifically, the taxation of pass through entities and the reduction in the corporate tax rate appear to be the cornerstone of the legislation.
 
Below is listing of some of the more prominent provisions in the bill.

 
BUSINESS

  • Deduction for Pass through Income
  • Look Through Rule Applied to Gain on Sale of Partnership Interest
  • Corporate Tax Rate reduced to 21%
  • Repeal of rules regarding partnership technical terminations
  • Repeal of the corporate alternative minimum tax
  • Increased expensing provisions under IRC Section 179
  • 100% Cost Recovery (Expensing) of Qualifying Business Assets
  • Depreciable recovery periods for Real Property shortened to 15 years
  • Farming Equipment Recovery Period shortened to 5 Years
  • Luxury Auto Depreciation Limits Increased
  • Limits on Deduction (Expensing) of Business Interest
  • Net Operating Loss Carryback rules generally repealed
  • Treatment of Like Kind Exchanges repealed except for real property
  • Deductions for Entertainment expenses disallowed
  • Cash Method of Accounting expanded to businesses with receipts less than $25M
  • Capitalization of certain expenses under Section 263A is repealed for businesses with receipts under $25M
  • Accounting for Long Term Contracts repealed for businesses with receipts less than $25M

INDIVIDUALS

  • Top individual tax bracket reduced to 37% - rate threshold increased to $600K
  • Standard Deduction increased to $24K
  • Personal Exemptions repealed
  • Child tax credit increased
  • State and Local tax deduction limited to $10K
  • Mortgage Interest Deduction further limited
  • Charitable Contribution threshold increased for cash contributions
  • Miscellaneous Itemized Deductions disallowed in full
  • Pease Limitation (Phaseout) on itemized deductions suspended
  • Alternative Minimum Tax Exemption threshold increased
  • Expanded use of IRC Section 529 Education accounts

MISCELLANEOUS PROVISIONS

  • IRA Contributions Re-characterization  Repealed
  • Estate tax exemption increased to $11.2M (inflation adjusted)

The above is an abbreviated listing of some of the more prominent changes.  The actual bill contains a myriad of other changes that are certain to be impactful, but will most likely affect a smaller taxpayer population.  Although most of the provisions become effective for tax years after December 31, 2017, planning for the future can  start now.  Our tax professionals will review the details of the bill and provide further communication as to how taxpayers can benefit from the new legislation.  Please contact us should you have any questions of how this might impact your specific individual or business tax situation.

Content by:

Bland Garvey, P.C.

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