Reduction & Simplification of Individual Income Tax Rates Individual rates on ordinary income (1) Seven brackets with top rate of 39.6 percent # Seven brackets with top rate of 37 percent #^ Unearned income of children Unearned income exceeding $2,100 taxed at parents rates; remaining income up to $2,100, less child s standard deduction, taxed at child s rate Unearned income exceeding $2,100 taxed at rates applicable to estates & trusts; remaining income up to $2,100, less child s standard deduction, taxed at child s rate Capital gains rate (1) Top rate of 20 percent # Carried interest Standard deduction Capital gains rate after one-year holding period for interests received in exchange for performance of services $6,500 for single filers, $9,550 head of household & $13,000 MFJ Capital gains rate after three-year holding period $12,000 for single filers, $18,000 head of household & $24,000 MFJ (2) Personal exemption $4,150 (3) Repealed^ Identification of shares of stock sold, exchanged or otherwise disposed of Taxpayers may use either a first-in, first-out (FIFO) or specific identification method Treatment of Business Income of Individuals, Trusts & Estates Nonpassive losses from flow-through entity Deductible to extent sufficient tax basis exists Nonpassive losses limited to $250,000 ($500,000 MFJ); excess loss treated as NOL & carried forward (2) Pass-through tax rate Individual rate on ordinary income Deduction of 20 percent of domestic qualified business income (QBI); subject to limitation (4) ; expires after 12/31/2025 Simplification & Reform of Family & Individual Tax Credits Child tax credit $1,000; phaseout at $75,000 for single filers ($110,000 MFJ) $2,000 ($1,400 refundable); phaseout beginning at $200,000 for single filers ($400,000 MFJ) (2) Family tax credit Not addressed $500 nonrefundable credit for dependents other than qualifying children; phaseout at $200,000 for single filers ($400,000 MFJ) (2) Education tax credits Three higher education tax credits provided: American Opportunity Tax Credit (AOTC), Hope Scholarship Credit & Lifetime Learning Credit For more on how the Tax Cuts and Jobs Act might affect your personal tax situation, visit /taxreform. 1
Education savings rules Simplification & Reform of Family & Individual Tax Credits, Continued Qualified education expenses restricted to qualified higher education Elementary & secondary school expenses, up to $10,000, treated as qualified expenses for 529 plans Student loan indebtedness Student loan interest Tuition & related expenses Qualified tuition program rollovers to qualified ABLE programs Generally included in taxable income unless certain exceptions apply Deduction for qualified student loan interest paid during year for nondependent taxpayers with adjusted gross income (AGI) less than $80,000 single ($160,000 MFJ) Deduction for qualified tuition & fees paid during year Tax-free rollovers to qualified ABLE accounts under 529A are not permitted Income from discharge of student loan debt on account of death or total & permanent disability of student excluded from taxable income (2) Permits rollover of amounts from qualified tuition programs to ABLE accounts without penalty; effective for distributions made after December 22, 2017 (2) Itemized deductions limitation Total amount of otherwise allowable itemized deductions reduced by 3 percent of the amount by which the taxpayer's AGI exceeds a threshold; does not reduce itemized deductions by more than 80 percent Simplification & Reform of Deductions & Exclusions Home mortgage interest State & local taxes paid or accrued not in connection with a trade or business Personal casualty & theft losses Wagering losses Deduction for mortgage interest paid or incurred on up to $1 million of acquisition indebtedness & $100,000 of home equity indebtedness Deduction for: (1) state, local & foreign real property taxes, (2) state & local personal property taxes & (3) state & local income taxes (or state & local sales tax paid, if higher) Deduction for casualty & theft losses incurred Deduction allowed to extent of wagering gains Deduction for mortgage interest paid or incurred on up to $750,000 of acquisition indebtedness; deduction for interest paid on home equity loans eliminated (2)(5) Deduction limited to $10,000 for the aggregate of: (1) state & local real & personal property taxes & (2) state & local income tax (or state & local sales tax paid, if higher) (2) Eliminated except for losses incurred within a major disaster area under the Robert T. Stafford Disaster Relief and Emergency Assistance Act (as amended 2016) (2) Clarifies that wagering losses include any otherwise allowable deduction incurred in connection with wagering transactions 2
Simplification & Reform of Deductions & Exclusions, Continued Gifts to charity Miscellaneous itemized deductions Medical & dental expenses Alimony paid Moving expenses Educator expenses Bicycle commuting reimbursement Deduction for charitable contributions made during year; deduction for cash contributions limited to 50 percent of AGI Deduction for tax preparation fees, unreimbursed employee expenses & other miscellaneous items paid during year to extent they exceed 2 percent of AGI Deduction for out-of-pocket expenses paid or incurred during year to extent expenses exceed 10 percent of AGI Deduction for qualifying amounts paid under a divorce or separation instrument Deduction & income exclusion for qualified expenses paid for moving at least 50 miles in connection with a job or business Deduction up to $250 ($500 MFJ) for qualified expenses paid by eligible educators Reimbursements up to $20 per month excludible from employees gross income Deduction for cash contributions modified to increase AGI limitation to 60 percent (2)(6) For 2017 & 2018, deduction for out-ofpocket expenses paid or incurred during year to extent expenses exceed 7.5 percent of AGI; threshold raises to 10 percent of AGI beginning in 2019 Repealed (both deduction & income inclusion); effective for divorce decrees executed after December 31, 2018 Deduction & income exclusion eliminated except for active-duty members of the armed forces (2) Gain on sale of principal residence Recharacterization of certain IRA & Roth IRA contributions Extended rollover period for the rollover of plan loan offset amounts in certain cases Length-of-service award programs for bona fide public safety volunteers Exclusion up to $250,000 for single filers ($500,000 MFJ) of gain from sale of principal residence where home used as principal residence for at least two of previous five years Simplification & Reform of Savings, Pensions & Retirement Contributions to a traditional IRA permitted to be recharacterized as contributions to a Roth IRA or vice versa; permits recharacterization of conversions An employee who receives a plan loan distribution has 60 days to contribute the distribution to an eligible retirement plan to avoid additional tax Provides exception to deferred compensation plan rules if aggregate amount of length-of-service awards accruing for a bona fide volunteer with respect to any year of service does not exceed $3,000 Recharacterization can t be used to unwind Roth IRA conversions The 60-day rollover period is extended to the due date for filing the employee's tax return for that year (including extensions) Increases the aggregate amount of lengthof-service awards for bona fide volunteers to $6,000 3
Alternative Minimum Tax Alternative minimum tax 28 percent top rate; exemption of $55,400 for single filers ($86,200 MFJ); exemption amounts begin to phase out at $123,100 & $164,100, respectively Affordable Care Act individual mandate 28 percent top rate; exemption of $70,300 for single filers ($109,400 MFJ) beginning after 12/31/2017; exemption amounts begin to phase out at $500,000 & $1 million, respectively^ Elimination of Shared Responsibility Payment for Individuals Failing to Maintain Minimal Essential Coverage Individuals not covered by health plan that provides at least minimum essential coverage must pay individual shared responsibility payment (7) Other Provisions Individual shared responsibility payment reduced to zero for months beginning after 12/31/2018 Contributions to ABLE accounts Contesting IRS levy Combat zones Contributions are not deductible & generally may not exceed the annual gift tax exclusion amount or limits imposed on accounts under the qualified tuition program of its respective state The IRS has nine months to return the monetary proceeds from the sale of wrongfully levied property; an action for wrongful levy must be brought within nine months from the levy date Members of the armed forces serving in combat zones are afforded a number of tax benefits, including income exclusions for certain military pay Increases contribution limit to ABLE accounts under certain circumstances; designated beneficiary may claim saver s credit for contributions made to ABLE account (2) Extends period of time IRS has to return monetary proceeds to two years; also extends the time period for bringing a civil action for wrongful levy to two years (8) Grants combat zone tax benefits to the Sinai Peninsula of Egypt (9) 2016 disaster area relief Distributions from qualified retirement plans are generally included in income; early distributions are generally subject to a 10 percent additional early withdrawal tax taxpayers may roll over distributions into another eligible retirement plan within 60 days to avoid income inclusion; individuals may claim itemized deductions for personal casualty losses, subject to limitation Provides an exception to the 10 percent early withdrawal tax in the case of a distribution due to a qualified 2016 disaster taxpayers may recognize income attributable to a qualified 2016 disaster distribution ratably over three years; taxpayers are allowed a period of up to three years for recontributions of qualified 2016 disaster distributions modifies casualty loss limitations associated with a 2016 disaster (10) 4
Footnotes *Unless stated otherwise, these provisions generally apply to tax years beginning after 2017. # Plus 3.8 percent net investment income tax on unearned income when modified adjusted gross income exceeds $200,000 for single filers ($250,000 married filing jointly (MFJ)). ^ Expires after December 31, 2025, except amounts would continue to be indexed for inflation using chained measurement of the consumer price index where applicable. 1. See also Individual Brackets available at /taxreform. 2. Reverts to its form before January 1, 2018, after December 31, 2025. 3. Subject to phaseout based on AGI under previous law. This limitation is repealed under the new law, except would revert to its form before January 1, 2018, after December 31, 2025. 4. Deduction does not apply to specified service businesses, except in case of taxpayer whose taxable income does not exceed $157,500 for single filers ($315,000 MFJ) with a phaseout beginning at the same levels over the next $50,000 ($100,000) of taxable income. QBI is all domestic business income other than investment income (except income from publicly traded partnerships that s eligible for inclusion), investment interest income (other than qualified real estate investment trust and corporate dividends), net capital gain, foreign currency gains, etc. The deduction is limited to the greater of 50 percent of W-2 wages paid with respect to the business or 25 percent of W-2 wages paid plus 2.5 percent of the unadjusted basis of all qualified property. 5. Interest deductions related to acquisition indebtedness for existing mortgages are unchanged. Interest deductions related to home equity loans, except where proceeds are used for home acquisition or improvement, is disallowed, regardless of when the debt was incurred. 6. Repeals exception to contemporaneous written acknowledgment requirement for contributions of $250 or more when donee organization files required return. Effective for contributions made in tax years beginning after December 31, 2016. 7. Tax imposed for any month an individual does not have minimum essential coverage unless an exception applies. Tax for any calendar month is one-twelfth of tax calculated as an annual amount. Annual amount is equal to greater of flat dollar amount (lesser of sum of individual annual dollar amounts for members of taxpayer s family or 300 percent of adult individual dollar amount of $695 for 2018) or excess income amount (2.5 percent of excess of taxpayer s household income for taxable year over threshold amount of income for requiring taxpayer to file income tax return). 8. Effective for levies made after December 22, 2017, and levies made on or before December 22, 2017, if the nine-month period has not expired as of December 22, 2017. 9. Generally effective beginning June 9, 2015, through any subsequent tax year beginning before January 1, 2026. 10. A qualified 2016 disaster distribution includes any distribution made on or after January 1, 2016, and before January 1, 2018, to an individual whose principal place of abode at any time during calendar year 2016 was in a 2016 disaster area. Personal casualty loss relief applies to losses arising in tax years beginning after December 31, 2015, and before January 1, 2018. 5