There are numerous changes brought about by the December 2017 tax bill, also known as the Tax Cuts and Jobs Act, that are likely to impact you, your taxes, and your estate plan.
Gift & Estate Tax Exemptions Have Doubled
Beginning January 1, 2018, the new tax law doubled each person’s exemption from estate and gift taxes. Now you can gift up to $11.2 million, untaxed. Couples can gift up to $22.4 million.*
The Generation-Skipping Transfer Tax Exemption Has Doubled
This exemption for passing your wealth on to your grandchildren and future generations has also doubled to $11.2 million per person or $22.4 million per couple. There is no federal cap on the length of a generation-skipping transfer trust.*
Step-Up & Portability Remain
The value of assets passed to heirs will continue to be set at the fair market rate at the time of inheritance. There is no change to portability, where the surviving spouse may use the unused portion of the gift and estate tax exemptions of the deceased spouse.
Deductions For Charitable Contributions Increased By 10%
You will now be able to deduct cash donations of up to 60% of your adjusted gross income.
Tax Brackets, AMT & Deductions Have Been Changed
The new maximum tax rate is 37% for individuals with income that exceeds $500,000 or couples with income that exceeds $600,000. The law doubled the standard deduction to $12,000 for individuals and $24,000 for couples. All personal exemptions were eliminated. Some people may still be subject to the alternative minimum tax or AMT; however, exemptions rose to $70,300 for individuals and $109,400 for couples.*
Uses Of 529 Plans Have Been Expanded
Under the new law, section 529 plans may be used to pay college tuition as well as up to $10,000 per year for tuition at elementary and secondary schools.
Deductions Have Been Cut Or Capped
Itemized deductions subject to the 2% floor were removed, as were deductions for alimony, moving expenses, and some casualty losses.
Many of our clients will be affected by the changes to deductions for interest and state and local taxes. For all mortgages signed after December 15, 2017, the interest deduction is limited to the amount incurred on up to $750,000 on a principal residence and one other qualified residence. The home equity loan interest deduction was eliminated. The maximum annual deduction for state and local income taxes, sales taxes, and property taxes, combined, is now $10,000.
The Benefits Of Pass-Through Businesses Were Limited
The new law reduces some taxes on pass-through businesses in certain cases but restricts benefits in others. Owners of these businesses may deduct 20% of qualified business income, subject to a wage limitation phased in for those individuals who earn more than $157,500 and couples who earn more than $315,000. This benefit is eliminated for owners of service businesses whose income exceeds $207,500 for individuals and $415,000 for couples.
How You May Benefit
Contact us at (703) 448-7575 to learn more or to schedule a one-on-one consultation on how these and other changes will affect you – and how you could maximize how you benefit from these changes.
*These changes sunset on December 31, 2025. In addition, upcoming elections may result in new legislation that changes the timing or lowers these amounts.