The following information is a summary of the tax reform provisions that affect most returns. Read H.R.1 - 115th Congress (2017 - 2018): An Act to provide for reconciliation pursuant to titles II and V of the concurrent resolution on the budget for fiscal year 2018 for all tax reform changes. Click on a topic below to learn more.
Title I - Individual tax reform
New income tax rates and brackets:
$24,000 - MFJ, QW
$18,000 - HOH
$12,000 - Single, MFS
Elderly / Blind - Unchanged
Kiddie tax changes (8615):
- Earned income taxed at single rates
- Unearned income taxed at trust & estate rates
2018 estate and trust income tax rates for unearned income over $2,100:
|Taxable income||Tax rate|
|Not over $2,550||10% of taxable income|
|Over $2,550 but not over $9,150||$255 plus 24% of the excess over $2,550|
|Over $9,150 but not over $12,500||$1,839 plus 35% of the excess over $9,150|
|Over $12,500||$3,011.50 plus 37% of the excess over $12,500|
2018 tax rates for child's long-term capital gains and qualified dividends:
|Taxable income||Tax rate|
|Up to $2,600||0%|
|Over $2,600 and up to $12,700 ($2,601 - $12,700)||15%|
|Over $12,700 ($12,701 +)||20%|
California and Hawaii continue to calculate tax based on parents' and siblings' rates.
Treatment of business income of individuals, trusts, and estates
Qualified Business Income Deduction:
The Tax Cuts and Jobs Act adds a new deduction for non-corporate taxpayers for qualified business income. The deduction reduces taxable income and is generally 20% of a taxpayer's qualified business income (QBI) from a partnership, S corporation, or sole proprietorship, defined as the net amount of items of income, gain, deduction, and loss with respect to the trade or business. Certain types of investment-related items are excluded from QBI, e.g., capital gains or losses, dividends, and interest income (unless the interest is properly allocable to the business).
Taxpayers whose taxable income exceeds the threshold amount of $157,500 ($315,000 in the case of a joint return) are subject to limitations based on the W-2 wages and the adjusted basis in acquired qualified property. For service related businesses, there is a separate phase-out if taxable income exceeds the threshold amount.
The deduction is taken for partnerships and S corporations at the partner or shareholder level. Trusts and estates are eligible for the deduction. W-2 wages and the adjusted basis in acquired qualified property are apportioned between the trust or estate and the beneficiaries. Specified agricultural or horticultural cooperatives are also eligible for the deduction under special rules. Qualified business income includes only income effectively connected with a U.S. trade or business (or Puerto Rico if all the income is subject to US tax).
The deduction is intended to reduce the tax rate on qualified business income to a rate that is closer to the new corporate tax rate.
Additional information can be found here: 2018 Individual and Business Tax Reform - Passthrough Tax Treatment Qualified Business Income (QBI) Deduction
Exclusions and adjustments
Exclusion of qualified moving expense reimbursement:
Exclusion for discharge of certain student loan indebtedness:
Loans eligible for the exclusion under the provision are loans made by (1) the United States (or an instrumentality or agency thereof), (2) a State (or any political subdivision thereof), (3) certain tax-exempt public benefit corporations that control a State, county, or municipal hospital and whose employees have been deemed to be public employees under State law, (4) an educational organization that originally received the funds from which the loan was made from the United States, a State, or a tax-exempt public benefit corporation, or (5) private education loans (for this purpose, private education loan is defined in section 140(7) of the Consumer Protection Act).
Limitation on excess business loss:
Consolidation of education savings rules:
Deductions and personal credits
Mortgage interest deduction:
Deduction for home mortgage interest is limited to interest on up to $750,000 ($375,000 for married taxpayers filing separately) of acquisition indebtedness and the deduction for interest on home equity indebtedness is suspended. For tax years beginning after Dec. 31, 2025, the pre-Act $1 million/$500,000 acquisition indebtedness limitations are restored and apply regardless of when the indebtedness was incurred, and the suspension for home equity indebtedness interest ends.
The new lower limit doesn't apply to acquisition indebtedness incurred before Dec. 15, 2017. A taxpayer who entered into a binding written contract before Dec. 15, 2017 to close on the purchase of a principal residence before Jan. 1, 2018, and who purchases the residence before Apr. 1, 2018, is considered to incur acquisition indebtedness before Dec. 15, 2017.
The pre-Act acquisition indebtedness limitations continue to apply to taxpayers who refinance existing qualified residence indebtedness that was incurred before Dec. 15, 2017, provided the resulting indebtedness doesn't exceed the amount of the refinanced indebtedness.
State and local tax (SALT) deduction:
May not deduct foreign real property taxes.
Personal casualty loss deduction:
Personal casualty losses are nondeductible unless attributable to a federally declared disaster.
Gambling loss deduction:
The new law increases the allowable deduction for cash donations made to public charities from 50% of Adjusted Gross Income (AGI) to 60% of AGI.
The new law removes the Pease limitation from the tax code. The Pease limitation was an overall reduction on itemized deductions for higher-income taxpayers. The rule reduced the value of a taxpayer’s itemized deductions by 3% of adjusted gross income (AGI) over a certain threshold. The 3% reduction continued until it phased out 80% of the value of the taxpayer’s itemized deductions.
The ability for those 70½ or older to make “qualified charitable distributions,” also known as IRA rollover gifts, wasn’t changed by tax reform. It will still be possible for these donors to make tax-free gifts of up to a total of $100,000 per year from their IRAs, which will also qualify as part of their mandatory withdrawal for the year.
Medical expense deduction:
Moving expense deduction:
For taxable years, beginning after December 31, 2017 and before January 1, 2026 the deduction for moving expenses and the exclusion for qualified moving expense reimbursement is suspended, except for members of the Armed Forces of the United States on active duty who move pursuant to a military order and incident to a permanent change of station.
Miscellaneous itemized deductions subject to 2% floor:
Miscellaneous itemized deductions to which the 2%-of-AGI floor applied include:
- Unreimbursed employee business expenses
- Unreimbursed vehicle expenses of rural mail carriers
- Investment expenses and expenses for the production or collection of income
- Tax determination expenses
- Expenses allowed under the “hobby loss” rules
Overall limitation on itemized deductions:
Child tax credit:
Credit for other dependents:
Savings, pensions, and retirement
Recharacterization of certain IRA and Roth IRA contributions:
Rollovers of plan loan offsets:
Length of service awards for public safety volunteers:
Estate and gift taxes
Alternative Minimum Tax
- For joint returns and surviving spouses, $109,400;
- For single taxpayers, $70,300;
- For marrieds filing separately, $54,700.
- For joint returns and surviving spouses, $1 million.
- For all other taxpayers (other than estates and trusts), $500,000.
- For trusts and estates, the base figure of $22,500 and phase-out amount of $75,000 remain unchanged.
Affordable Care Act individual mandate
ABLE account changes:
For tax years beginning after Dec. 22, 2017 and before Jan. 1, 2026, the ABLE account contribution limitation for contributions made by the designated beneficiary is increased, and other changes are in effect as described below. After the overall limitation on contributions is reached (i.e., the annual gift tax exemption amount; for 2018, $15,000), an ABLE account's designated beneficiary can contribute an additional amount, up to the lesser of (a) the federal poverty line for a one-person household; or (b) the individual's compensation for the tax year.
QTP can be rolled over to ABLE account without penalty provided that the ABLE account is owned by the designated beneficiary of the 529 account, or a member of such designated beneficiary's family. The rolled-over amounts are counted towards the overall limitation on amounts that can be contributed to an ABLE account within a tax year, and any amount rolled over in excess of this limitation is includible in the gross income of the distributee.
The Act allows the designated beneficiary of an ABLE account to claim the saver's credit under Code Sec. 25B for contributions made to his or her ABLE account. The Act also requires that a designated beneficiary (or person acting on the beneficiary's behalf) maintain adequate records for ensuring compliance with the above limitations.
The Tax Cuts and Jobs Act extends the period so that an amount equal to the money levied upon or the money received from a sale of the property may be returned within two years from the date of the levy.
Similarly, the period for a suit by someone other than the taxpayer for (i.) the return of property wrongfully levied on, (ii) an injunction against the enforcement of a levy or a sale of the seized property, or (iii) for the return of the proceeds from the sale of seized property is extended so that the suit must be started within two years from the date of the original levy or agreement giving rise to the action. This two-year period is extended if a timely request for the return of property wrongfully levied on was made under, for a period of 12 months from the date of filing of the request or for a period of six months from the date IRS rejects the request, whichever comes first.
Personal casualty losses for Mississippi River Delta Flood Disaster Area:
Title II - Business Tax Reform
Corporate tax rate
The new law increases the bonus depreciation percentage from 50 percent to 100 percent for qualified property acquired and placed in service after Sept. 27, 2017, and before Jan. 1, 2023. The bonus depreciation percentage for qualified property that a taxpayer acquired before Sept. 28, 2017, and placed in service before Jan. 1, 2018, remains at 50 percent. Special rules apply for longer production period property and certain aircraft.
The definition of property eligible for 100 percent bonus depreciation was expanded to include used qualified property acquired and placed in service after Sept. 27, 2017, if all the following factors apply:
- The taxpayer didn’t use the property at any time before acquiring it.
- The taxpayer didn’t acquire the property from a related party.
- The taxpayer didn’t acquire the property from a component member of a controlled group of corporations.
- The taxpayer’s basis of the used property is not figured in whole or in part by reference to the adjusted basis of the property in the hands of the seller or transferor.
- The taxpayer’s basis of the used property is not figured under the provision for deciding basis of property acquired from a decedent.
Also, the cost of the used qualified property eligible for bonus depreciation doesn’t include any carryover basis of the property, for example in a like-kind exchange or involuntary conversion.
The new law adds qualified film, television and live theatrical productions as types of qualified property that are eligible for 100 percent bonus depreciation. This provision applies to property acquired and placed in service after Sept. 27, 2017.
Under the new law, certain types of property are not eligible for bonus depreciation. One such exclusion from qualified property is for property primarily used in the trade or business of the furnishing or sale of:
- Electrical energy, water or sewage disposal services,
- Gas or steam through a local distribution system or
- Transportation of gas or steam by pipeline.
This exclusion applies if the rates for the furnishing or sale have to be approved by a federal, state or local government agency, a public service or public utility commission, or an electric cooperative.
The new law also adds an exclusion for any property used in a trade or business that has floor-plan financing. Floor-plan financing is secured by motor vehicle inventory that a business sells or leases to retail customers.
Depreciation limitation for luxury autos and personal use property:
Year 1: 10,000 + Bonus: 8,000
Year 2: 16,000
Year 3: 9,600
Year 4: 5,760
Changes to depreciation of farm property:
Applicable recovery period for real property:
Use of ADS for electing farming businesses:
Small business reforms
Section 179 expensing:
S Corporation conversion to C Corporation:
Reform of business related exclusions, deductions, etc.
Limitation of business interest expense deduction:
- NOL deduction is limited to 80% of taxable income without regard to the deduction for NOLs.
- NOL cannot be carried back but can be carried forward indefinitely.
- Two-Year farming loss carryback allowed
- Insurance companies get 2-year carryback and 20-year carryforward.
- In 2018, a calendar-year taxpayer has a $90,000 NOL. It has no other NOL carryovers. It carries forward the NOL to 2019, a year in which it has taxable income of $100,000. The taxpayer's 2019 NOL deduction is limited to $80,000 ($100,000 × 80%). The remaining $10,000 can't be deducted in 2019, but can be carried forward indefinitely.
Like-kind exchanges of real property:
Under the Tax Cuts and Jobs Act, Section 1031 now applies only to exchanges of real property that is held for use in a trade or business or for investment. Real property, also called real estate, includes land and generally anything built on or attached to it. An exchange of real property held primarily for sale still does not qualify as a like-kind exchange. A transition rule in the new law provides that Section 1031 applies to a qualifying exchange of personal or intangible property if the taxpayer disposed of the exchanged property on or before December 31, 2017, or received replacement property on or before that date.
Thus, effective January 1, 2018, exchanges of personal or intangible property such as machinery, equipment, vehicles, artwork, collectibles, patents, and other intellectual property generally do not qualify for non-recognition of gain or loss as like-kind exchanges. However, certain exchanges of mutual ditch, reservoir or irrigation stock are still eligible for non-recognition of gain or loss as like-kind exchanges.
Properties are of like-kind if they’re of the same nature or character, even if they differ in grade or quality. Improved real property is generally of like-kind to unimproved real property. For example, an apartment building would generally be of like-kind to unimproved land. However, real property in the United States is not of like-kind to real property outside the U.S.
Deductions for domestic production activities:
Entertainment expenses - Schedule C / 2106:
No deduction is allowed with respect to entertainment, amusement, or recreation; membership dues for a club organized for business. Employers cannot deduct cost of providing qualified transportation fringes and benefits.
Taxpayers may continue to deduct 50 percent of the cost of business meals if the taxpayer (or an employee of the taxpayer) is present and the food or beverages are not considered lavish or extravagant. The meals may be provided to a current or potential business customer, client, consultant or similar business contact.
Food and beverages that are provided during entertainment events will not be considered entertainment if purchased separately from the event.
Employee achievement awards:
Unrelated business taxable income:
Under § 501(a), organizations described in §§ 401(a) and 501(c) generally are exempt from federal income taxation. However, § 511(a)(1) imposes a tax (computed as provided in § 11) on the UBTI of organizations described in § 511(a)(2), which includes organizations described in §§ 401(a) and 501(c) (other than a trust described in § 511(b) or an instrumentality of the United States described in § 501(c)(1)) as well as state colleges and universities. Additionally, § 511(b)(1) imposes a tax (computed as provided in § 1(e)) on the UBTI of certain trusts described in § 511(b)(2).
An exempt organization may engage in more than one unrelated trade or business. Prior to the enactment of § 512(a)(6), § 1.512(a)-1(a) provided that, with respect to an exempt organization that derives gross income from the regular conduct of two or more unrelated trades or businesses, UBTI was the aggregate gross income from all such unrelated trades or businesses less the aggregate deductions allowed with respect to all such unrelated trades or businesses. However, § 512(a)(6) changes this calculation for exempt organizations with more than one unrelated trade or business. Congress intended “that a deduction from one trade or business for a taxable year may not be used to offset income from a different unrelated trade or business for the same taxable year.” H.R. Rep. No. 115-466, at 548 (2017). Specifically, § 512(a)(6) provides that, in the case of any exempt organization with more than one unrelated trade or business:
(A) UBTI, including for purposes of determining any net operating loss (NOL) deduction, shall be computed separately with respect to each trade or business and without regard to § 512(b)(12) (allowing a specific deduction of $1,000),
(B) The UBTI of such organization shall be the sum of the UBTI so computed with respect to each trade or business, less a specific deduction under § 512(b)(12), and
(C) For purposes of § 512(a)(6)(B), UBTI with respect to any such trade or business shall not be less than zero.
Thus, § 512(a)(6) no longer allows aggregation of income and deductions from all unrelated trades or businesses. Section 512(a)(6) applies to taxable years beginning after December 31, 2017, but, as discussed in more detail in section 9 of this notice, not to NOLs arising before January 1, 2018, that are carried over to taxable years beginning on or after such date.
Technical termination of partnership:
Research and Development Credit:
Business credit reform
Orphan drug credit:
Real estate rehabilitation credit:
Employer credit for paid family medical leave:
- Pub. 5307 - Basics for individuals and families
- Tax reform provisions that affect individuals
- Section 199A final regulations
- Pub. 535 - Business expenses
- Highlights of tax reform for businesses
- Tax reform provisions that affect businesses
- Tax reform provisions that affect exempt organizations