Individuals’ Itemized Deductions
of Non-Business Taxes
There are new limitations in place re-
garding itemized deductions of non-busi-
ness taxes for individuals—specifically,
how they relate to the taxpayer’s ability
to use various state, local and foreign real
and personal property taxes and income/
profit taxes as itemized deductions.
Deductions for state and local taxes paid
by individual taxpayers are now capped
at $10,000. Limitations do not apply to
businesses.
Changes to Tax Treatment of Alimony
The new tax law features significant
changes to the tax treatment of alimony.
For divorces and legal separations execut-
ed after 2018, the alimony-paying spouse
will no longer be able to deduct the pay-
ments, and the alimony-receiving spouse
will not include payments in gross income.
These rules do not apply to existing di-
vorces and separations, unless parties
agree otherwise and the court approves.
Changes to Deductions for
Interest on a Home Mortgage
There are new changes to deductions
for interest on home mortgages. The limit
on qualifying acquisition debt on a prin-
cipal residence or second home is reduced
from $1 million to $750,000. This reduced
limit does not apply to debt refinanced
before 2018. The deduction for interest
on home equity debt has been eliminat-
ed, and this is applicable regardless of
when the home equity debt was incurred.
Child Tax Credit and
New Credit for Other Dependents
The Child Tax Credit has been doubled
to $2,000 per qualifying child under the
age of 17. The refundable portion has also
been increased to $1,400 per qualifying
child. The phase-out threshold of adjust-
ed gross income, or AGI, has been raised
as well, from $110,000 to $400,000 for
qualifying taxpayers identified as married
filing jointly. The threshold is $200,000
for all other qualifying taxpayers. In order
to claim the credit for a qualifying child,
the child’s social security number must
be included on the tax return.
529 Accounts Used for Elementary
or Secondary School Tuition
A 529 plan distribution is tax-free if it
is used to pay qualified higher education
expenses of the beneficiary, which is the
student. Prior to the new law, tuition for
elementary or secondary schools wasn’t a
qualified higher education expense. The
changes provide that qualified higher
education expenses now include expenses
for tuition at an elementary or second-
ary public, private or religious school.
There is a $10,000 limit on the amount
of tax-free distribution from a 529 plan
for these newly qualified expenses.
Changes to the Estate and
Gift Tax Exemption
Modifications to the estate and gift
tax exemption will result in fewer estates
being subject to the 40 percent tax and
larger estates owing less tax. The base
estate and gift tax exemption is doubled
from $5 million to $10 million and
indexed for inflation.
New tax rates resulting from this leg-
islation did not affect Calendar Year
2017 returns but immediately affected
the amount of wage withholding and
the amount, if any, of estimated tax in-
dividuals will pay in 2018. Capital gains
rates and brackets will generally remain
the same.
The Impact on Businesses
As with individuals, there are now sig-
nificant new rules in place for businesses,
including:
• The reduction of the corporate tax
rate from 35 percent to 21 percent
• The entire repeal of the alternative
minimum tax for corporations
• The creation of new fringe benefit
rules, including no deduction for
business-related entertainm