Tax is a constantly evolving field, endlessly shifting and changing in response to public expectations and societal needs. If you take a break from the field of tax and then return, there’s a very good chance you’re going to be a bit clueless. This is true even for those who only take a very short break. Tax law changes rapidly, and so it’s imperative that you always keep up-to-date with the latest changes to ensure that you’re able to place yourself in a financially optimal position. Changes wrought by the Tax Cuts & Jobs Act of 2017 – the most recent series of tax law revisions which became effective in January, 2018 – included a number of substantive changes to the tax code which are sure to have a tremendous impact on individual taxpayers and corporate entities. In this article, we will identify some of the more significant changes contained in the Tax Cuts & Jobs Act, and then discuss the implications of these changes for society as a whole.
Increased Standard Deduction
The “standard deduction” – that is, the deduction available to those who choose not to “itemize” their deductions – has been increased by the Tax Cuts & Jobs Act by a significant margin. For individuals, the standard deduction has been increased from its previous amount of $6,350 to $12,700 (i.e., doubled), and the standard deduction for married couples filing jointly has been increased from its old amount of $12,000 to $24,000 (again, doubled).
This doubling of the standard deduction represents an immense change and will undoubtedly play a role in how many tax returns are itemized in coming years. This change will certainly tip the scale and increase the number of those opting to take the standard deduction rather than itemize their deductions; for many, those who would have itemized will, instead, end up claiming the standard deduction because the changes makes it financially prudent to do so.
Elimination of Personal Property Exchanges
Section 1031 of the tax code traditionally allowed what are called “personal property exchanges,” but the Tax Cuts & Jobs Act eliminated this provision from Section 1031. Personal property is one of two “macro” categories of property, the other being real property. Real property is generally defined as land and its accompanying structures, whereas personal property is any other tangible or intangible property. Under Section 1031, individuals or corporate entities may “exchange” their property for other property of like-kind and defer recognition of capital gains. Accordingly, in the past, many individuals and businesses exchanged their personal property – say, an airplane, car or other piece of personal property not excluded under Section 1031, in order to maximize their financial position and “roll forward” their unrecognized tax liability.
The almost full elimination of Section 1031 exchanges (see The Near Death of the 1031 Exchange) and resultant elimination of personal property exchanges will have a significant impact on many individual investors and businesses. For instance, previously, a rental car business could “swap” or exchange their used models for newer models without incurring a tax liability, but now such businesses will have to recognize a liability in the same scenario. Fortunately, real property exchanges survived the tax code revisions and so real estate investors can still utilize the tax advantages of this code section.
Preservation of the Home Mortgage Interest Deduction
The preservation of the home mortgage interest deduction is another highlight of the Tax Cuts & Jobs Act, although technically it’s not a change at all but, rather, an almost-lost continuation of existing law. Due to its preservation in the new law, homeowners can still choose to take a home mortgage interest deduction, which has the potential to significantly reduce a taxpayer’s overall tax liability.
Changes to the Tax Rate Structure for Individuals
The Tax Cuts & Jobs Act also altered the tax table for individuals filing singly, married filing jointly, heads of household and married couples filing separately. For unmarried individuals filing, the rate structure is as follows: 10% for income not above $9,525, 12% for income above $9,525 but below $38,700, 22% for income above $38,700 but below $82,500, 24% for income above $82,500 but below $157,500, 32% for income above $157,500 but below $200,000, 35% for income above $200,000 but below $500,000, and 37% for income above $500,000. The structure still has the same number of brackets as before – 7 total – but the rates have been modified to assist lower and middle income earners.
To view the full tables for individuals, heads of households, married couples filing jointly and married couples filing separately, see the official page from the IRS here. The top rates for all of these categories is the same at 37%, but the brackets vary widely between categories.
Tax Cuts & Jobs Act Help
Again, these are just a few of the more significant changes to the code introduced through the act; a full summary of all the changes would go far beyond the scope of our article here. But these very substantial alterations clearly prove that the world of tax moves very quickly, and that any person wishing to maximize his or her financial condition must diligently keep track of what’s going on in our nation’s capital.
When you select a CPA or tax attorney, it’s equally imperative that you insist that they be thoroughly up-to-date with current rules and regulations. When you plan your financial future, it’s a big mistake to assume that those tax perks and advantages previously available are still available in the wake of passage of the Tax Cuts & Jobs Act.
The attorneys at Mackay, Caswell & Callahan, P.C. work hard to stay on top of current law and regularly conduct research and put in effort to follow significant developments in their field. If you have a tax issue and need professional assistance, don’t hesitate to contact one of our top New York City tax attorneys today.