Overview of the 2017 Tax Reform Law

1/24/2018

The Tax Cuts and Jobs Act has potentially sweeping implications for the American economy, which will take years to fully understand. But, as of this moment, we can already examine a number of the consequences for Washington, D.C. and Maryland residents.

First, let's take a look at some of the provisions that have been popular among my clients:

• The individual tax rate has been reduced in all income brackets.

 

• The standard deduction has been doubled (it is now $12,000 for individuals and $24,000 for couples). For some people, this may mean not having to spend time itemizing deductions.

 

• Business owners who opt for pass-through taxation (mainly small and local businesses) will save 20% on specific types of business income.

 

• The federal estate tax exemption has been doubled. Any American earning less than $11.18 million will not have to worry about the federal estate tax until the year 2025, absent changes to the law.

Now, for some of the less popular provisions:

• There is a new $10,000 limit on state income tax deductions. In the long run, this may cause state and local governments to lower taxes. But, right now, it means the taxes of some Washington, D.C. and Maryland residents who itemize deductions will increase.

 

• The deductibility threshold for mortgage debt on a home is now $750,000, as opposed to $1 million, and interest deductions for second homes are excluded. Although mortgages taken out before tax reform was enacted are unaffected, this can have a big impact on new home buyers.

 

• The 1031 "like-kind" exchange is now limited to real estate. This increases the number of people who will be required to pay capital gains tax.

Of course, there are countless other ways tax reform can affect your investments. That is why it is important to consult someone who not only understands the law but also takes the time to learn about your unique circumstance.