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coral gables magazine voicesyourmoney byjohnharris

The 2018 Tax Reform Bill: What You Need to Know, Part I

THE CORAL GABLES MAGAZINE
Voices - Your Money By John W. Harris


On December 22, 2017, President Trump signed into law the first significant reform of the U.S. Tax Code since Ronald Reagan was in office. Here is Part 1 of how it will affect your finances. 

The new tax act will affect how we make decisions on estate planning, buying a home, health insurance, setting up a business, and even divorce agreements. In this series, we will highlight major parts of the law to keep in mind, starting with individual income taxes. 

Personal tax rates and income brackets will be lowered, yet they will also expire (or sunset) at the end of 2025.  Specifically, the top rate falls from 39.6% to 37%, the 35% bracket stays the same, while the 33% bracket falls to 32%, the 28% bracket to 24%, the 25% bracket to 22%, and the 15% bracket to 12%. The lowest bracket remains at 10%. The standard deduction has essentially doubled, while the personal exemption has been removed. The deduction/ exemption trade off works well for most people but may not for those with many dependents. The law also temporarily raises the exemption amount and exemption phaseout threshold for the alternative minimum tax (AMT), which affects higher earners. These changes also sunset at the end of 2025. The sunset provisions were necessary as a compromise to allow for the expeditious passage of the tax reform bill.

The deduction for state and local income taxes, property taxes and sales tax, or SALT, remains in place for those who itemize their taxes, but it is now subject to a $10,000 cap.  This will likely hurt taxpayers and homeowners in high tax states.  As Florida’s SALT is much more reasonable, Florida increasingly becomes a more compelling comparative domicile from a tax perspective. The mortgage interest deduction for new home purchases has also been lowered from $1 million to $750,000 post Dec. 15, 2017. 

Also beginning in 2018 the deduction for interest paid on a home equity line will no longer be eligible for the home mortgage interest deduction (with certain exception for the purchase of real estate and or direct improvement thereof). The new tax law does still preserve the deduction of mortgage debt used to acquire a second home. 
 
The tax deduction for alimony payments will no longer be deductible for the person who writes the checks.  This provision will apply to couples who sign divorce or separation paperwork after December 31, 2018.
  
While Obamacare was not repealed, the new tax law does permanently end the Obamacare individual mandate starting in 2019. The individual mandate provided for tax penalties for individuals that did not obtain health insurance coverage.

Next Month Part II: Estate Planning
 
John Harris currently serves as Managing Director with The Coral Gables Trust Company. He has more than 28 years of investment management, trust, private banking, commercial lending and financial and estate planning experience. John has been a regular contributor to several print and online publications, including "SunSentinel," "Miami Herald," and "Forbes."