New Tax Legislation Signed Into Law

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As the 2017 Tax bill has been signed into law, we now understand what will change in the tax arena after January 1, 2018. This is a high level discussion of the changes.* Please discuss your individual tax situation with your professional tax and/or other advisors.

  1. The charitable deduction will be retained. Most other itemized deductions will be eliminated.
  2. The Pease limitation, which under current law phases out up to 80% of itemized deductions for high income taxpayers will be repealed so therefore charitable deductions for these taxpayers will no longer be reduced.
  3. The adjusted gross income (AGI) limitation on charitable gifts of cash to public charities will be increased from 50% of AGI to 60% of AGI. The AGI limitation on charitable gifts of appreciated property to public charities will remain 30% of AGI. Donors who itemize will continue to be able to carry forward deductions subject to either limitation for up to five years.
  4. Notwithstanding 1 above, the 80% charitable deduction for gifts made in exchange for college athletic stadium seating rights will be repealed. No charitable deduction will be available for gifts made in exchange for seating rights at collegiate athletic stadium events.
  5. New and generally lower individual tax brackets will apply: 10%, 12%, 22%, 24%, 32%, 35%, and 37%. The 37% bracket will apply to married couples filing jointly (MFJ) with taxable income over $600,000 and single filers and heads of households with taxable income over $500,000. The thresholds for the brackets will be indexed for inflation starting in 2019.
  6. The standard deduction will be substantially increased - $12,000 for singles, $24,000 for MFJ, and $18,000 for heads of households - and the personal exemption will be repealed.
  7. The gift tax, estate tax, and generation skipping tax will continue. However, the exemption amounts for each of these taxes will double to $11.2 million per individual, ($22.4 million for gift and estate tax for married couples) and will continue to be indexed to inflation.
  8. As noted above, most itemized deductions will be eliminated.  In addition to the charitable deduction, two other itemized deductions that will remain, although modified, are:
    - State and local taxes but only up to a combined annual limit of $10,000 (which can also include real estate and sales taxes);
    - Mortgage interest on new mortgages of up to $750,000 of debt for MFJs, a decrease from the prior law’s $1 Million limit. (Deduction of interest on existing mortgages remains subject to the $1 Million limit.)
  9. The alternative minimum tax will be retained for individuals, but with higher exemption amounts and higher exemption amount phase-out thresholds.

*In summarizing this information, we have relied heavily on an article entitled “The Tax Cuts and Jobs Act and Charitable Giving” dated December 19, 2017 courtesy of Bill Laskin, Vice President, Product Management of PG Calc, Inc.