Tax Cuts and Jobs Act
In December 2017, the government passed the Tax Cuts and Jobs Act of 2017 (TCJA), a large tax reform bill intended to promote growth. With the largest tax law changes since 1986, the TCJA changes several items, such as tax rates, tax credits, and limitations on existing deductions, among other changes.
Interest Expense Limitation
Section 163(j) was amended by the TCJA to provide new rules limiting the deduction of business interest expense for taxable years beginning after December 31, 2017. For any taxpayer to which Section 163(j) applies, Section 163(j)(1) now limits the taxpayer’s annual deduction for business
interest expense to the sum of:
1) The taxpayer’s business interest income for the taxable year;
2) 30 percent of the taxpayer’s adjusted taxable income for the taxable year
3) The taxpayer’s floor plan financing interest for the taxable year.
Mortgage Interest Deduction
Before the TCJA, the taxpayer was able to deduct interest on up to $1 million of home acquisition debt or $500,000 for those who use married filing separate status. The taxpayer could also treat another $100,000 ($50,000 if married filing separately) of mortgage debt as home acquisition debt if the loan proceeds were used to buy or improve a first or second residence.
Under the TCJA, the taxpayer may deduct interest on up to $750,000 of mortgage debt incurred to buy or improve a first or second residence. For taxpayers who use married filing separate status, the home acquisition debt limit is $375,000. The TCJA also eliminates the prior provision
that allowed interest deductions on up to $100,000 of home equity debt.
Estate Tax Exclusion 2018
The Estate Tax is a tax on an individual’s right to transfer property at their death. It consists of an accounting of all assets and property owned by the individual at the time of their death. The fair market value of all of these assets is called the Gross Estate. Prior to the TCJA, taxpayers were required to file an estate return when the gross estate exceeds a $5 million base adjusted for inflation each year.
Under the new tax law, the federal estate, gift and generation-skipping transfer tax exemptionamounts will increase to $11,200,000 for individuals and $22,400,000 for married couples, from $5,490,000 and $10,980,000, respectively, in 2017. These exemption amounts are scheduled to increase with inflation each year until 2025, when the provision is set to sunset.