On December 22, 2017, President Trump signed the $1.5 Trillion tax reform plan into law. The bill is the most significant overhaul of the United States tax system in decades. Significant changes are made to corporate tax rates, and new deductions for certain pass-through entity owners are available.
Among the highlights:
Tax rates that will apply to individuals have generally been reduced in 2018 through 2025. The top bracket will be 37% (vs 39.6% in 2017).
Individuals that have “qualified business income” from pass-through entities such as partnerships, S corporations, sole proprietorships, Real Estate Investment Trusts (REIT), or Publically Traded Partnerships (PTP) may be allowed to deduct up to 20% of such income in 2018 to 2025.
In 2018 through 2025 the itemized deductions for state and local income taxes as well as for sales and property taxes will be significantly limited (to no more than $10,000 in total per year).
Many itemized deductions will no longer be deductible between 2018-2025. The deductions include those for investment expenses, tax preparation costs and unreimbursed employee business expenses.
Alimony pursuant to a divorce or separation occurring after December 31, 2018 will not deductible by the payor spouse and not be included in income by the recipient spouse.
Mortgage Interest deductions will be curtailed through 2025; only interest on $750,000 (vs $1,000,000 in 2017) of acquisition indebtedness will be deductible. Mortgages existing prior to December 15th, 2017, however, will be grandfathered as well as a refinancing of such mortgages. The interest on home equity loans will not be deductible 2018-2025.
We have prepared a summary of the new law for your reference. This analysis does not constitute tax advice, and you should consult with a tax adviser for advice for your specific situation.
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