January 22, 2018
In addition to the gift and estate tax changes and opportunities discussed above, the Act made various changes to the tax code that will have a significant effect on individual taxpayers. Some of the key changes included in the Act are as follows:
Increase the Standard Deduction. The Act will increase the standard deduction to $12,000 for single filers and $24,000 for married couples filing jointly, while simultaneously eliminating the personal exemption for taxpayers and their dependents. In addition, for those with children, the Act will expand the child tax credit from $1,000 to $2,000, while increasing the phase-out to $400,000 for married couples. The first $1,400 of tax credit would be refundable.
Lowering the Top Marginal Income Tax Rate. The Act lowered most of the tax rates where the highest bracket is capped at a 37% marginal tax rate. The Act raises the exemption on the alternative minimum tax from $86,200 dollars to $109,400 dollars for married filers, and increases the phase-out threshold to $1 million dollars.
Limitation of SALT Deduction. For those who live in states with high local taxes (i.e. New York, New Jersey, California), the limitation of the deduction for state and local taxes to $10,000 will be burdensome. Since the limitation applies to trusts as well as individuals you may want to consider moving trusts to a no tax state where possible. The Act also limits the mortgage interest deduction to the first $750,000 in principal value and eliminates interest deductions on home equity loans.
Prenuptial Agreements Impacted. Under the Act, maintenance will no longer be tax deductible with respect to divorce after 2018. Many prenuptial agreements are negotiated on the premise that the payments will be tax deductible. This change may cause some couples to consider divorcing before 2019 or revisit their existing prenuptial agreements to address the law’s impact on any future contractual obligations.
Congress’s dramatic overhaul of the tax system has changed the tax law in a way that we have not seen in decades. We strongly recommend that you revisit your current estate plan to ensure you are protected against any unintended consequences under the Act. We look forward to hearing from you.