Steven V. Wiebler, CPA
Steven V. Wiebler, CPA

Individual Tax Provisions

Kiddie Tax Modified

Under pre-TCJA law, pursuant to the “kiddie tax” provisions, the net unearned income of a child was taxed at the parents’ tax rates if the parents’ tax rates were higher than the tax rates of the child. The remainder of the child’s taxable income [i.e., earned income, plus unearned income up to $2,100 (for 2018), less the child’s standard deduction] was taxed at the child’s rates. For tax years 2018–2025, the taxable income of a child attributable to earned income is taxed under the rates for single individuals, and taxable income of a child attributable to net unearned income is taxed according to the brackets applicable to trusts and estates. This rule applies to the child’s ordinary income and his or her income taxed at preferential rates [IRC Sec. 1(j)(4), as added by Act Sec. 11001(a)].

Personal Exemption Deduction Eliminated

Under pre-TCJA law, the deduction for each personal exemption was $4,150 for 2018, subject to a phaseout for higher earners. For tax years 2018–2025, the deduction for personal exemptions is eliminated [IRC Sec. 151(d), as modified by Act Sec. 11041(a)].

Standard Deduction Increased

Under pre-TCJA law, for 2018, the standard deduction amounts were to be: $6,500 for single individuals and married individuals filing separately, $9,550 for heads of household, and $13,000 for married individuals filing jointly (including surviving spouses). Additional standard deductions may be claimed by taxpayers who are elderly or blind. For tax years 2018–2025, the standard deduction is increased to $24,000 for married individuals filing a joint return, $18,000 for head-of-household filers, and $12,000 for all other taxpayers, adjusted for inflation in tax years after 2018. No changes are made to the current-law additional standard deduction for the elderly and blind [IRC Sec. 63(c)(7), as added by Act Sec. 11021(a)].

Medical Expense Deduction Threshold Temporarily Reduced

For tax years 2017–2018, the threshold for medical expense deductions is reduced from 10%-of-AGI to 7.5%-of-AGI for all taxpayers [IRC Sec. 213(f), as amended by Act Sec. 11027(a)]. In addition, the rule limiting the medical expense deduction for Alternative Minimum Tax (AMT) purposes to the excess of such expenses over 10%-of-AGI doesn’t apply to those tax years [IRC Sec. 56(b)(1)(B), as amended by Act Sec. 11027(b)].

State and Local Tax Deduction Limited

For tax years 2018–2025, a taxpayer’s itemized deduction for state and local taxes is limited to $10,000 ($5,000 for a married taxpayer filing a separate return) of the aggregate of (1) state and local property taxes and (2) state and local income, war profits, and excess profits taxes (or sales taxes in lieu of income, etc. taxes) paid or accrued in the tax year [IRC Sec. 164(b)(6), as added by Act Sec. 11042]. Warning: The provision also includes a rule stating that an individual may not claim an itemized deduction in 2017 on a pre-payment of income tax for a future tax year in order to avoid the dollar limitation applicable for tax years beginning after 2017. 

Mortgage and Home Equity Indebtedness Interest Deduction Limited

Under pre-TCJA law, taxpayers could deduct as an itemized deduction qualified residence interest, which included interest paid on a mortgage secured by a principal residence or a second residence. The underlying mortgage loans could represent acquisition indebtedness of up to $1 million, plus home equity indebtedness of up to $100,000. For tax years 2018–2025, the deduction for interest on home equity indebtedness is eliminated and the deduction for mortgage interest is limited to underlying indebtedness of up to $750,000 ($375,000 for married taxpayers filing separately) [IRC Sec. 163(h)(3)(F), as added by Act Sec. 11043(a)]. Note: The new lower limit doesn’t apply to any acquisition indebtedness incurred before 12/15/17.

Charitable Contribution Deduction Limitation Increased

For contributions made in tax years after 2017, the 50% limitation under IRC Sec. 170(b) for cash contributions to public charities and certain private foundations is increased to 60% [IRC Sec. 170(b)(1)(G), as added by Act Sec. 11023]. Contributions exceeding the 60% limitation are generally allowed to be carried forward and deducted for up to five years, subject to the later year’s ceiling.

Charitable Contribution Deduction for College Athletic Seating Rights Eliminated

Under pre-TCJA law, a taxpayer could treat 80% of a payment as a charitable contribution where: (1) the amount was paid to or for the benefit of an institution of higher education (i.e., generally, a school with a regular faculty and curriculum and meeting certain other requirements); and (2) such amount would be allowable as a charitable deduction but for the fact that the taxpayer receives (directly or indirectly) as a result of the payment the right to purchase tickets for seating at an athletic event in an athletic stadium of such institution. For tax years after 2017, no charitable deduction will be allowed for any payment to an institution of higher education in exchange for the right to purchase tickets or seating at an athletic event [IRC Sec. 170(l), as amended by Act Sec. 13704].

Casualty and Theft Loss Deduction Eliminated

For tax years 2018–2025, the personal casualty and theft loss deduction is eliminated, except for personal casualty losses incurred in a federally-declared disaster [IRC Sec. 165(h)(5), as amended by Act Sec. 11044]. However, where a taxpayer has personal casualty gains, the loss suspension doesn’t apply to the extent that such loss doesn’t exceed gain. Note: The TCJA includes special relief provisions for tax years 2018–2025 for taxpayers who incurred losses from certain 2016 major disasters.

Gambling Loss Limitation Modified

For tax years 2018–2025, the limitation on wagering losses under IRC Sec. 165(d) is modified to provide that all deductions for expenses incurred in carrying out wagering transactions, and not just gambling losses, are limited to the extent of gambling winnings [IRC Sec. 165(d), as amended by Act Sec. 11050]. 

Miscellaneous Itemized Deductions Eliminated

For tax years 2018–2025, the deduction for miscellaneous itemized deductions that are subject to the 2% floor is eliminated [IRC Sec. 67(g), as added by Act Sec. 11045].

“Pease” Limitation on Itemized Deductions Eliminated

Under pre-TCJA law, higher-income taxpayers who itemized their deductions were subject to a limitation on these deductions (commonly known as the “Pease limitation”). For tax years 2018–2025, the “Pease limitation” on itemized deductions is eliminated [IRC Sec. 68(f), as added by Act Sec. 11046].

New Deduction for Business Income from Pass-through Entities and Sole Proprietorships

For tax years 2018–2025, an individual generally may deduct 20% of qualified business income from a partnership, S corporation, or sole proprietorship, as well as 20% of aggregate qualified Real Estate Investment Trust (REIT) dividends, qualified cooperative dividends, and qualified publicly traded partnership income. Special rules apply to specified agricultural or horticultural cooperatives. The 20% deduction is not allowed in computing Adjusted Gross Income (AGI), but rather is allowed as a deduction reducing taxable income [IRC Secs. 199A, “Deduction for Qualified Business Income,” as added by Act Sec. 11011(a) and 62(a), as modified by Act Sec. 11011(b)].
A limitation based on W-2 wages paid is phased in for married filing joint taxpayers with taxable income of $315,000 or more ($157,500 for other individuals). A disallowance of the deduction with respect to specified service trades or businesses also is phased in above these threshold amounts of taxable income. A specified service trade or business means any trade or business involving the performance of services in the fields of health, law, consulting, athletics, financial services, brokerage services, or any trade or business where the principal asset of such trade or business is the reputation or skill of one or more of its employees or owners, or which involves the performance of services that consist of investing and investment management trading, or dealing in securities, partnership interests, or commodities [IRC Sec. 199A, as added by Act Sec. 11011(a)].

Treatment of Carried Interest

Under pre-TCJA law, carried interests were taxed in the hands of the taxpayer (i.e., the fund manager) at favorable capital gain rates instead of as ordinary income. For tax years beginning after 2017, the TCJA imposes a three-year holding period requirement in order for certain partnership interests received in connection with the performance of services to be taxed as long-term capital gain rather than ordinary income [IRC Sec. 1061, “Partnership Interests Held in Connection with Performance of Services,” as added by Act Sec. 13309(a)].

New Limitations on “Excess Business Loss.”

Under pre-TCJA law, IRC Sec. 469 provides a limitation on excess farm losses that applies to taxpayers other than C corporations. An excess farm loss for a tax year means the excess of aggregate deductions that are attributable to farming businesses over the sum of aggregate gross income or gain attributable to farming businesses plus the threshold amount. The threshold amount is the greater of (1) $300,000 ($150,000 for married individuals filing separately), or (2) for the five-consecutive-year period preceding the tax year, the excess of the aggregate gross income or gain attributable to the taxpayer’s farming businesses over the aggregate deductions attributable to the taxpayer’s farming businesses. For tax years 2018–2025, the TCJA provides that the excess farm loss limitation doesn’t apply, and instead a noncorporate taxpayer’s “excess business loss” is disallowed. Under the new rule, excess business losses are not allowed for the tax year, but are instead carried forward and treated as part of the taxpayer’s Net Operating Loss (NOL) carryforward in subsequent tax years. This limitation applies after the application of the passive loss rules [IRC Sec. 461(l), as added by Act Sec. 11012].  An excess business loss for the tax year is the excess of aggregate deductions of the taxpayer attributable to the taxpayer’s trades and businesses over the sum of aggregate gross income or gain of the taxpayer plus a threshold amount. The threshold amount for a tax year is $500,000 for married individuals filing jointly and $250,000 for other individuals, with both amounts indexed for inflation [IRC Sec. 461(l)(3), as added by Act Sec. 11012]. In the case of a partnership or S corporation, the provision applies at the partner or shareholder level.

Self-created Property Not Treated as Capital Asset

Under pre-TCJA law, property held by a taxpayer (whether or not connected with the taxpayer’s trade or business) is generally considered a capital asset under IRC Sec. 1221(a). However, certain assets are specifically excluded from the definition of a capital asset, including inventory property, depreciable property, and certain self-created intangibles (e.g., copyrights and musical compositions). Effective for dispositions after 2017, the TCJA amends IRC Sec. 1221(a)(3), resulting in the exclusion of patents, inventions, models or designs (whether or not patented), and secret formulas or processes, which are held either by the taxpayer who created the property or by a taxpayer with a substituted or transferred basis from the taxpayer who created the property (or for whom the property was created), from the definition of a “capital asset” [IRC Sec. 1221(a)(3), as amended by Act Sec. 13314].

Alimony Deduction by Payor and Income Inclusion by Payee Repealed

For any divorce or separation agreement executed after 2018, or executed before that date but modified after it (if the modification expressly provides that the new amendments apply), alimony and separate maintenance payments are not deductible by the payor spouse and are not included in the income of the payee spouse [Former IRC Secs. 215, 61(a)(8), and 71, as stricken by Act Sec. 11051].

Moving Expense Deduction and Reimbursements Eliminated

For tax years 2018–2025, the deduction for moving expenses and the income exclusion for qualified moving expense reimbursements is eliminated, except for members of the Armed Forces on active duty (and their spouses and dependents) who move pursuant to a military order and incident to a permanent change of station [IRC Secs. 132(g), as amended by Act Sec. 11048 and 217(k), as added by Act Sec. 11049].

ABLE Account Changes

The TCJA makes several changes to the rules governing ABLE accounts established for the benefit of certain disabled individuals. Effective for tax years beginning after the enactment date and before 2026, the contribution limitation to ABLE accounts with respect to contributions made by the designated beneficiary is increased. After the overall limitation on contributions is reached (i.e., the annual gift tax exemption amount; for 2018, $15,000), an ABLE account’s designated beneficiary can contribute an additional amount, up to the lesser of (1) the federal poverty line for a one-person household; or (2) the individual’s compensation for the tax year [IRC Sec. 529A(b), as amended by Act Sec. 11024(a)]. Saver’s Credit Eligible. The designated beneficiary of an ABLE account can claim the saver’s credit under IRC Sec. 25B for contributions made to his ABLE account [IRC Sec. 25B(d)(1), as amended by Act Sec. 11024(b)].

 Rollovers from Qualified Tuition Programs (QTPs)

 For distributions after the date of enactment and before 2026, amounts from QTPs (also known as 529 accounts) are allowed to be rolled over to an ABLE account without penalty, provided that the ABLE account is owned by the designated beneficiary of that 529 account, or a member of such designated beneficiary’s family [IRC Sec. 529(c)(3), as amended by Act Sec. 11025). Such rolled-over amounts are counted towards the overall limitation on amounts that can be contributed to an ABLE account within a tax year, and any amount rolled over in excess of this limitation is includible in the gross income of the distributee.

QTPs Expanded

Under pre-TCJA law, the earnings on funds in a QTP could be withdrawn tax-free only if used for qualified higher education expenses at eligible schools. Eligible schools included colleges, universities, vocational schools, or other postsecondary schools eligible to participate in a student aid program of the Department of Education. For distributions after 2017, “qualified higher education expenses” is expanded to include tuition at an elementary or secondary public, private, or religious school, up to a $10,000 limit per tax year [IRC Sec. 529(c)(7), as added by Act Sec. 11032(a)].

Child Tax Credit Increased

For tax years 2018–2025, the child tax credit is increased from $1,000 to $2,000 per qualifying child under the age of 17, and other changes are made to phase-outs and refundability during this same period, as outlined in this section [IRC Sec. 24(h)(2), as added by Act Sec. 11022(a)].
Under pre-TCJA law, the credit phased out by $50 for each $1,000 of modified AGI over $75,000 for single or head of household filers, $110,000 for married joint filers, and $55,000 for married individuals filing separately. Under the TCJA, the income level at which the credit phases out is increased to $400,000 for married taxpayers filing jointly ($200,000 for all other taxpayers) (not indexed for inflation) [IRC Sec. 24(h)(3), as added by Act Sec. 11022(a)].
Nonchild Dependents - A $500 nonrefundable credit is provided for certain nonchild dependents [IRC Sec. 24(h)(4), as added by Act Sec. 11022(a)].
Refundability - The amount that is refundable is increased to $1,400 per qualifying child, and this amount is indexed for inflation, up to the $2,000 base credit amount. The earned income threshold for the refundable portion of the credit is decreased from $3,000 to $2,500 [IRC Sec. 24(h)(5) and (6), as added by Act Sec. 11022(a)]. 

Affordable Care Act Individual Mandate Repealed

Under pre-TCJA law, the Affordable Care Act required individuals, who were not covered by a health plan that provided at least minimum essential coverage, to pay a “shared responsibility payment” (also referred to as a penalty) with their federal tax return ($695 for 2018). Unless an exception applied, the tax was imposed for any month that an individual did not have minimum essential coverage.
For months beginning after 2018, the amount of the individual shared responsibility payment is permanently reduced to zero [IRC Sec. 5000A(c), as amended by Act Sec. 11081].

Recharacterization of Roth Conversions Eliminated

For Roth conversions in tax years beginning after 2017, the TCJA repeals the special rule that allows IRA contributions to one type of IRA (either traditional or Roth) to be recharacterized as a contribution to the other type of IRA. Thus, recharacterization cannot be used to unwind a Roth conversion, but is still permitted with respect to other contributions [IRC Sec. 408A(d), as amended by Act Sec. 13611].



On 12/20/17, both the House and Senate passed H.R. 1—commonly referred to as the Tax Cuts and Jobs Act (TCJA). 

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