The New Tax Reform Proposal – What This Means for YouSubmitted by Orange CA Financial Advisor | Sterling Wealth Partners on November 3rd, 2017
After almost a year of “buzz” from President Trump and Congressional Republicans, the proposed tax reform bill has finally been introduced as the “Tax Cuts and Jobs Act”. This is a major piece of legislation and will have significant impact on your financial and tax situation if passed. This blog post will attempt to outline some of the features of the bill that could most affect our clients. But first, keep in mind that this is simply proposed legislation for now. Both the House and Senate need to approve it and President Trump must sign the bill before becoming law. There very well could be big changes to the proposal before it is passed, or it may not be passed at all. Congress is pushing to get this bill done before the end of the year, but it may fall into 2018 before anything gets done.
Here are some the major provisions of the Tax Cuts & Jobs Act:
· Reduction in tax brackets from 7 to 4 – Tax brackets would be 12%, 25%, 35% and 39.6%.
· An increase in the standard deduction and elimination of the personal exemption. The standard deduction would be doubled but the personal exemption will be eliminated. This may eliminate the need to itemize your deductions.
· Repeal of the Alternative Minimum Tax. This may be a benefit to those who have certain income and expense items.
· Elimination of certain itemized deductions. This is a major part of the tax bill that could have a big impact on certain people who itemize, particularly those who live in high tax states like here in California or who have large medical expenses.
o Mortgage interest deduction only allowed on up to $500,000. It is currently $1,000,00.
o Elimination of state and local taxes deduction.
o Elimination of the medical expenses deduction.
o Elimination of many miscellaneous itemized deductions
· Change to tax treatment of alimony – Alimony would no longer be deductible by the payor or taxable to the payee for divorces after 2017
· Change to the $250,000 primary residence tax exclusion. You will now need to live in the home for 5 out of 8 years instead of 2 out 5 years.
· Changes to 529 plans and the American Opportunity Tax Credit. Certain existing educational planning opportunities will be eliminated or changed.
· Elimination of Roth conversion “recharacterizations. Roth conversions would become permanent with no opportunity to change your mind.
· Doubling of the estate tax exemption. The estate tax exemption would be increased to $11,200,000 for single individuals and $22,400,000 for married couples. Ultimately the estate tax would be repealed in 2024.
As you can see, this bill is far reaching and will have either a positive or negative impact on just about everyone. It certainly will require re-evaluating your tax planning strategies. As mentioned before, this is currently just a proposal and we will keep you posted on the progress of the bill. In the meantime, now is the time to plan for any tax savings opportunities under the current rules for 2017. Please contact us for your tax planning review or consultation.