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Wealth Planning Advisory 2Q18

The Impact of Sunset Provisions on the Tax Cuts and Jobs Act

President Trump signed The Tax Cuts and Jobs Act (TCJA) into law on December 22, 2017. Several provisions in the TCJA were impacted by the U.S. Senate’s Byrd Rule.

The Byrd Rule makes it difficult to pass legislation that will produce a deficit, and as a result, certain provisions in a bill are designated to sunset after a specified period of time to avoid the deficit. It takes a vote of 60 Senators to override the Byrd Rule, and TCJA passed by only 51 votes.

In order to ensure that the deficit does not increase after 2027, which is the last year of the budget resolution period, designated sunset provisions in TJCA will only be effective for taxable years 2018-2025. The following are some of the key sunset provisions in TCJA:

  1. Standard Deduction. It is increased to $24,000 for married taxpayers filing jointly and to $12,000 for single taxpayers.
  2. Personal Exemption. The Personal Exemption will not be available.
  3. Deduction for State and Local Taxes. This deduction has typically included income taxes, property taxes and sales taxes at the state and local levels. Under TCJA, this itemized deduction is limited to $10,000 each taxable year.
  4. Home Mortgage Interest Deduction. For acquisition indebtedness incurred after December 15, 2017, the limit on the acquisition indebtedness on which the interest deduction is based is lowered from $1,000,000 to $750,000 for married taxpayers filing jointly.
  5. Miscellaneous Itemized Deductions. Miscellaneous itemized deductions allowable only to the extent they exceed 2% of Adjusted Gross Income are suspended.
  6. Moving Expenses Deduction. The deduction for moving expenses will only be available to members of the Armed Forces on active duty who move pursuant to a military order and incident to a permanent change of station.
  7. Estate/Gift Tax Exemption. TCJA basically doubles the estate/gift tax exemption per taxpayer from $5,490,000 in 2017 to $11,180,000 in 2018. This exemption will be adjusted annually for inflation.
  8. Qualified Business Income Deduction. TCJA provides a deduction of 20% of the qualified business income of pass-through entities, such as partnerships and S Corporations.  The deduction is taken at the taxpayer level not the entity level, and it is subject to certain thresholds.  Non-corporate taxpayers who receive ordinary Real Estate Investment Trust (REIT) dividends are eligible for the deduction, but the deduction is not available to specified trades or businesses, such as accounting and law firms when taxable income exceeds $415,000.

This Planning Advisory is not intended as tax or legal advice. Also, it is not intended to offer penalty protection or to promote, market, or recommend any information contained herein. Before acting on the information in this Planning Advisory, a competent professional should be consulted.